Apac banks exposed to high levels of private sector leverage: Moody's

Global rating agency Moody's has said many banks in the Asia Pacific (Apac) region, including India, are exposed to high levels of private sector leverage, although the buildup of such debt has slowed down of late.

Indian and Chinese banks are the most exposed to high corporate leverage risks, followed by those in Indonesia, Vietnam, Korea and Hong Kong, it said.

"Elevated and rising private leverage represent a negative credit development for these banks, because this undermines the resilience of borrowers to economic shocks, and constitutes a structural banking system vulnerability," Moody's senior vice president Christine Kuo said in a report.

The report blames the high leverage levels in the region to the unusually long period of low interest rates.

Private sector credit as a percentage of GDP rose in 12 of the 14 major Asian systems over the past decade, led by China, Hong Kong, Singapore, Korea and Vietnam.

Its vice-president and senior credit officer Eugene Tarzimanov noted that banks are not only exposed to direct default risks on their exposures, but also to an economy's broader adjustments to a debt overhang, including the risk of a slowdown and deep asset price corrections.

Vulnerabilities exist in the region's banking sector although the current slowdown in debt accumulation in most markets and higher economic growth expectations are both positive, said the report whcih covered Australia,China,Hong Kong, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, The Philippines, Singapore, Taiwan, Thailand and Vietnam.