Most systems in Asia are well capitalized and enjoy a strong profitability buffer, while the assets remain largely funded by domestic deposits, a situation which adds resilience to their liquidity profile.
Moody's expects these strengths to persist in 2014, allowing most systems to remain resilient in our base case scenario, which is characterized by the gradual recovery in global growth.
This view is reflected in turn in our average deposit ratings in the region, which, despite a slight decline in recent years, are now positioned above those in other emerging market regions, as well as Europe.
Nonetheless, Moody's assessment is that credit quality in Asia has generally peaked and that some systems will face increasing asset quality challenges, most notably in three areas:
* Continued rapid credit expansion remains a key credit issue because rapid lending growth is often a precursor to higher delinquency.
* High, and in some cases still-rising, property prices remain a threat to the credit profile of Asia's banks.
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* The potential end to the Federal Reserve's "quantitative easing program" could be a trigger for a turning point in the credit cycle.
In our view, the 15 systems covered by Moody's in Asia fall into five broad categories in terms of their bank credit outlook.
* Banks in India, Mongolia & Vietnam face immediate credit challenges in terms of their challenging macro-environment, high level of asset impairments, and vulnerable capital positions.
* Banks in China, Indonesia, Malaysia & Thailand are at risk of rising adjustment pressures after a period of strong credit growth, but still have stable outlooks due to the banks' loss absorbing buffers.
* Banks in Philippines are an outlier, with their credit profiles remaining on an improving trend, benefiting from a strong economic outlook, even after recent disasters and the absence of concerns about excessive credit growth
* Banks in Hong Kong & Singapore continue to boast very strong credit metrics, but their credit outlooks are clouded by signs of widening imbalances in their economies, most notably property bubble concerns, which put their current very high ratings under pressure.
* Banks in the mature economies of Australia, Japan, Korea, New Zealand & Taiwan are experiencing low credit growth. We also view these systems as less exposed to the risks of Fed tapering than their "emerging Asian" counterparts.
Moody's further continues to view Asia as lagging the global agenda regarding the adoption of resolution regimes as the region's authorities remain in no hurry to embrace the concept of statutory bail-ins.
Finally, Moody's expects mergers and acquisitions to continue to be a driver of credit quality for acquiring and acquired banks in 2014.
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