Asian banks are healthier! Lenders across Asia–Pacific stronger than the US; what Moody’s report shows – The Times of India

Banks across the Asia–Pacific region are displaying stronger capital health than lenders in the United States and Western Europe, Moody’s said in its latest survey. The agency’s comparison of the largest banking institutions across major markets shows Asia–Pacific banks have accumulated strong capital levels under what it describes as tighter and more cautious regulatory oversight.The survey found that the risk-weighted asset (RWA) profiles of large Asia–Pacific banks correspond closely with their actual credit losses over the past decade, indicating that the risk assigned to their assets reflects the ground reality. At the same time, the report stresses that RWA densities are not uniform across the region and vary by market. RWAs measure the level of risk in a bank’s portfolio by assigning higher weights to assets considered riskier, meaning institutions with higher RWA density have a greater proportion of high-risk assets on their balance sheets.A notable highlight of the study is the capital strength of major private sector banks in India. Moody’s stated, “Large private sector banks in India have high CET1 capital adequacy and leverage ratios because their internal capital generation has outpaced their RWA growth in the past couple of years, and they can raise equity easily from capital markets when needed.” CET1, or Common Equity Tier 1 capital, comprises retained earnings and equity shares and is the core line of defence against losses. Higher CET1 ratios translate to a greater capacity to absorb shocks without affecting depositor safety.By the end of 2024, the average CET1 ratios of large banks in Hong Kong, India and Korea in the sample stood at 18.0%, 14.7% and 14.5%, respectively. These figures stand higher than the 13.5% reported by the four biggest US banks and the 13.8% recorded by the top six banks in Western Europe, according to the report.While Moody’s says Asia–Pacific banks can raise equity from capital markets with relative ease when required, it also notes that state-owned banks remain weaker than their private counterparts on capital and leverage.The agency attributes higher RWA densities in India, Vietnam and some Chinese lenders to the continued use of the standardised approach for calculating risk weights, a method based on fixed regulatory prescriptions rather than banks’ own internal assessments. In India, regulators have announced plans to permit banks to move to the IRB (Internal Ratings-Based) approach by 2028, a transition expected to reduce RWA density if implemented successfully.For India, the sample in the survey consisted of State Bank of India, Axis Bank, ICICI Bank and HDFC Bank, representing roughly half of the country’s total banking system assets. Overall, the report examined 35 banks across eight major Asia-Pacific banking systems, covering 75% of the total assets of all rated banks in these markets.