Fitch Ratings on Tuesday said it expects Indian banks to issue new loss-absorbing capital and debt instruments aggregating $23 billion by end-2018.
Overall, banks in the Asia-Pacific (APAC) region are expected to issue such instruments totalling $200 billion.
In its report on ‘Regulatory Trends in APAC – July 2017’, the credit rating agency observed that new and evolving regulations could put more pressure on banks, but will ultimately strengthen the financial systems.
“The main changes will be the agreed phase-in of higher capital requirements and — in Japan’s case — higher total loss-absorbing capacity (TLAC) requirements.
“Fitch expects APAC banks to issue new loss-absorbing capital and debt instruments totalling $200 billion by end-2018 to meet the requirements. Banks in China, Japan and India will account for most of this issuance,” the report said.
The agency said a focus on risk-weight calculations and robustness of models will also keep banks in the more developed markets busy over the next few years.
More jurisdictions are likely to implement bail-in legislation, but support is unlikely to disappear in most markets as the authorities remain reluctant to impose losses on senior creditors.
Rating changes Most APAC banking systems are well-positioned to cope with pressures, but the potential for rating changes stemming from asset-quality issues is highest in India and China, said the agency.
According to Fitch, in India, where problems are concentrated among State-led banks, the government appears to be willing to provide capital to stronger banks to support growth, while providing weak banks with only the capital needed to meet minimum requirements — in order to encourage them to downsize and/or consolidate.
In China, risks are highest at second- and third-tier banks, which have weaker capital, larger exposure to shadow banking and higher reliance on short-term wholesale funding than the much stronger State-led banks.