TEXT-S&P Says Banks' Regional Expansion Is A Double-Edged Sword

(The following was released by the rating agency)

SINGAPORE (Standard & Poor's) July 31, 2012 -- Banks in

Singapore, Hong Kong, and Malaysia are likely to continue

expanding regionally over the next several years to take

advantage of higher yields and the growth potential in emerging

markets. However, the inherently higher risks and evolving

operating conditions in regional economies are likely to

counterbalance the revenue and diversification benefits for

these banks. That's according to a report, titled "Regional

Expansion By Singapore, Hong Kong, And Malaysian Banks Is A

Double-Edged Sword," that Standard & Poor's Ratings Services

published today.

"Overly aggressive overseas expansion could weaken the

stand-alone credit profiles of individual banks," said Standard

& Poor's credit analyst Ivan Tan. "We, however, expect these

banks' sound financial profiles, prudent risk management, and

potential support from respective governments or parent groups

to continue to support the ratings in most cases."

The report notes that increasing linkages among various

Asia-Pacific economies and fierce competition in home markets

are key factors in the regional expansion of banks in Singapore,

Hong Kong, and Malaysia. Standard & Poor's expects loan growth

in these countries to moderate amid the economic slowdown in

2012, in contrast to the strong expansion in loan book last

year. Interest margins are also likely to remain low, as

interest rate hikes are unlikely in 2012.

"Emerging Asian economies such as China, India, Indonesia,

and Vietnam offer notably higher growth potential due to their

sheer population and lower banking penetration rate," said

Standard & Poor's credit analyst Terry Sham. "The net interest

margins in some of these countries are also significantly higher

than in Singapore, Hong Kong, and Malaysia."

Such regional expansion is, however, fraught with risks.

China, India, Indonesia, and Vietnam have lower per capital

incomes, higher policy risks, weaker payment cultures, and more

legal uncertainties than the home markets of these banks. These

could translate into higher credit losses in the case of

substantial economic stress.

Standard & Poor's expects most rated banks in Singapore,

Hong Kong and Malaysia to further expand in a measured and

prudent fashion. Sizable debt funded acquisitions could threaten

banks' capitalization. Execution risks and regulatory

uncertainties could impose additional challenges on mergers and

acquisitions.

RELATED CRITERIA AND RESEARCH

-- From Independence To Interdependence: China, Hong Kong,

And Singapore Majors Lead Asia-Pacific Banks' Charge For

Offshore Growth, July 31, 2012

-- Hong Kong And Singapore Banks' Credit Quality Can

Withstand A Mild Recession In Europe, May 17, 2012

-- Banking Industry Country Risk Assessment: Malaysia, April

30, 2012

-- Banking Industry Country Risk Assessment: Hong Kong,

April 12, 2012

-- Research Update: DBS Bank Ltd. And DBS Bank (Hong Kong)

Ltd. 'AA-/A-1+' Ratings Affirmed On Parent's Announced

Acquisition Of Danamon, April 3, 2012

-- Banking Industry Country Risk Assessment: Singapore,

March 16, 2012

-- Banking Industry Country Risk Assessment Methodology And

Assumptions, Nov. 9, 2011

-- Banks: Rating Methodology And Assumptions, Nov. 9, 2011

Source: http://news.yahoo.com/text-p-says-banks-regional-expansion-double-edged-042456092--sector.html

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