2016 to be a challenging year for Asian corporates: Moody's

Moody's Investors Service today said 2016 will be a challenging year for corporates in Asia, mainly on account of concerns over the slowdown in China and a likely hike in interest rates in the US.

"As for Asia credit overall, the flat or slower growth for most Asian economies in 2016 and capital flow volatility will weigh on the region's rated debt issuers, particularly in the corporate sector," Moody's V-P and Senior Research Analyst Rahul Ghosh said in a statement.

Weak growth and commodity price declines will gang up with foreign currency volatility to raise credit risk across the region, Ghosh said.

"Asia's credit markets face a challenging year in 2016 because of heightened market concerns over China's growth slowdown and the pace of interest rate normalisation in the US," Moody's said in a report titled Asia Credit — Regional Fundamentals Put to the Test: FAQ on Asia Credit in 2016.

Moody's MD and Chief Credit Officer (Asia-Pacific) Michael Taylor too said China's policy trilemma is creating uncertainty for regional credit.

"It's becoming evident that the Chinese government's primary objectives of maintaining growth in excess of 6.5 per cent, implementing reforms and economic rebalancing, and ensuring macroeconomic and financial stability cannot be achieved in unison," Taylor said.

The recent stimulus measures in China and market intervention suggest that growth and stability in the country will be prioritised at the likely expense of a slower pace of reforms and delays to system deleveraging, the report said.

On corporates rated by Moody's, the report said corporate credit quality will decline in 2016 as it did in 2015, leading to further rating pressure and defaults, especially for speculative-grade companies.

However, the accommodative monetary policy, solid funding conditions in local bond markets and banking systems, and manageable refinancing needs should prevent defaults from spiking materially.

As for Asian banks, Moody's said their asset quality and profitability would deteriorate.
"Problem loans will continue to rise in most banking systems as slower growth exposes corporate and household leverage concerns," it said.

Moody's took the line that while Asian sovereigns' growth prospects, policy flexibility and limited external vulnerabilities underpin generally stable rating outlook for them, their credit buffers will be tested in a more adverse macroeconomic environment.

"The sovereigns' external health will be tested as volatility in capital flows weighs on balance of payment positions while policy space will be eroded as governments use a combination of monetary and fiscal measures in response to both slower domestic growth and external shock," it added.