Moody’s vice president and senior credit officer Eugene Tarzimanov said bank downgrades so far this year in Asean and India had been driven by the latter’s banks, following the downgrade of the sovereign in June.

“That said, the majority of the banks in the region are well-positioned at their ratings, despite a higher share of negative outlooks on bank ratings,” Tarzimanov said in a report today.

Moody’s expects asset quality and profitability to deteriorate from good levels in 2019 across most banking systems, with Singapore, Malaysia and the Philippines having the best asset quality with nonperforming loans below two per cent.

It said while government support measures would offset some of the pressure on banks, they would not fully eliminate the negative impact.

Despite the challenging outlook, the majority of banks are adequately capitalised, and Moody’s expects their funding and liquidity to remain sound and stable in 2020-21.

Citing an example, the firm said regulators in India, Thailand and Vietnam had restricted bank dividends, a credit positive for banks, while the largest banks would continue to benefit from deposit inflows as they were seen as safe-heavens in times of stress.

Moody’s expects the gross domestic product of most Asean economies and India to contract this year and gradually recover in 2021.

The relaxation of lockdowns and resumption of economic activity will be key factors supporting the recovery.