Asian Banks Brace for Profit Headwinds in 2025 Amid Diverse Challenges
Singapore – Banking profits across many Asian markets are anticipated to remain under pressure in 2025, with most lenders likely to see only modest improvements or manageable declines, according to recent analyses by Fitch Ratings and S&P Global Ratings. The challenges vary significantly by country, ranging from loan repayment issues to geopolitical uncertainties.
Key Market-Specific Challenges
- Thailand: Thai banks are expected to face loan repayment problems from small and medium enterprises (SMEs). Fitch Ratings noted that Thailand’s SME and retail segments remain particularly vulnerable following pandemic-era debt restructurings, which affected 10% of total loans, amidst a slow economic recovery.
- Malaysia & Vietnam: Banks in both Malaysia and Vietnam face similar concerns stemming from the property sector. S&P Global Ratings highlighted that commercial property vacancy rates remain elevated in both countries. While Malaysian banks have significant exposure to real estate development (around 8%), they have gradually reduced their lending to the sector. S&P expects credit demand to improve with faster economic growth, maintaining range-bound profitability.
- Philippines & Malaysia: Real estate exposure also presents a problem in the Philippines.
- Hong Kong: A potential dip in net interest margins could dampen profitability for Hong Kong lenders next year, though S&P anticipates any negative impact on asset quality from Hong Kong and China’s commercial real estate to be manageable.
- China: Chinese banks will need to replenish capital as the state’s stimulus package strains their income. Loan growth is projected to be around 9%, with banks moderating asset growth to preserve capital due to profitability pressures.
- Bangladesh: Bangladeshi banks are expected to continue experiencing weak profitability in 2025. While slowing credit growth might ease tight liquidity, high interest rates aimed at taming inflation are likely to persist, potentially slowing loan growth.
- Cambodia: Slower loan demand could ease funding strain, but covenant breaches remain a risk for Cambodian banks.
- Singapore: Singaporean banks are likely to see dampened profit growth over the next 12 months as net interest margins, which peaked in 2024, begin to normalize. While higher loan volumes can mitigate this, they are unlikely to fully offset the slowdown in profit growth.
Broader Regional Concerns and Opportunities
S&P Global Ratings forecasts increased volatility and slower growth across the Asia-Pacific region’s credit landscape in 2025, largely due to uncertain trade and foreign policies under US President-elect Donald Trump. Countries with significant trade surpluses with the US, such as Vietnam, Thailand, Malaysia, and India, are particularly vulnerable to universal tariffs. A global trade slowdown could curb overall growth and squeeze revenues for Asia-Pacific currencies and exporters. S&P’s Eunice Tan warned that “More US tariffs against Chinese exports could slow China’s export growth driver,” which would “hit revenue and growth” for export-centric Asia-Pacific economies.
Conversely, declining interest rates could prompt banks to move further down the risk curve to bolster earnings, according to Fitch. This might manifest as increased exposure to higher-yielding assets, a trend already observed in the Philippines and India, particularly in unsecured retail lending where pressures are mounting. Banks may also pursue more overseas expansion into riskier markets, as seen in Thailand.
Bright Spots and Improving Outlooks
- Sri Lanka: Banks in Sri Lanka are expected to see continued improvement in their financial performance in 2025 as the country’s political and economic crises recede. Fitch noted that Sri Lanka is close to completing its foreign-currency debt restructuring, which could lift its default status and enhance its credit profile, thereby easing the burden on banks and boosting business and revenue prospects.
- Vietnam: Vietnamese banks are projected to sustain their financial performance through higher loan growth and lower credit costs. They are likely to reduce reserve coverage, reflecting greater optimism about the economic outlook. Restructured loans under relief form a modest proportion of system loans, and most large banks have fully provisioned for these, limiting risks to earnings and balance sheets.
- Indonesia: Indonesian banks are expected to benefit from the country’s “buoyant economic growth,” with controlled credit costs and high net interest margins supporting overall profitability.
Overall, Asian banks face a complex environment in 2025. While some markets show resilience and even improvement, many will need to carefully navigate economic slowdowns, specific sector vulnerabilities, and evolving geopolitical trade dynamics.
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