The challenging economic and credit conditions stemming from COVID-19 will weigh on Indian and ASEAN banks' asset quality and profitability, according to Moody's Investors Service.
"In ASEAN and India, bank downgrades in 2020 have been driven by Indian banks following the downgrade of the sovereign in June," said Eugene Tarzimanov, Moody's Vice President and Senior Credit Officer.
"The majority of the banks in the region are well-positioned at their ratings despite a higher share of negative outlooks on bank ratings," he said in a report.
Moody's expects asset quality and profitability will deteriorate from good levels in 2019 across most banking systems with Singapore, Malaysia and the Philippines having the best asset quality with non-performing loans below 2 per cent.
While government support measures will offset some of the pressure on banks, they will not fully eliminate the negative impact, said Moody's.
Despite the challenging outlook, the majority of banks are adequately capitalised and Moody's expects their funding and liquidity will remain sound and stable in 2020-21.
For instance, regulators in India, Thailand and Vietnam have restricted bank dividends, a credit positive for banks, while the largest banks will continue to benefit from deposit inflows as they are seen as safe-havens in times of stress.
Moody's expects the GDP of most ASEAN economies and India will contract in 2020 and gradually recover in 2021. The relaxation of lockdowns and resumption of economic activity will be key factors supporting the recovery.
( With inputs from ANI )