Banks in nations such as India, the place lenders maintain a major chunk of presidency securities until maturity, may face massive losses owing to tightening financial coverage, but the lesser extent of rate of interest will increase in the Asia-Pacific area might assist curb such losses, Moody’s Investors Service stated in a report on Tuesday.
“In Bangladesh, China, India, Mongolia, the Philippines, and Taiwan, banks hold sizable volumes of HTM (held to maturity) securities. They are carried at amortisation costs, without reflecting their current market values, unless a bank decides to sell them,” the credit standing agency stated.
Such securities’ sales may lead to “a large loss if their current market values are substantially lower than their acquisition costs”, Moody’s cautioned, but famous it did not count on losses to be “significant because increases in interest rates… have been less significant and less rapid than to those in the U.S.”.
Noting that the majority HTM safety holdings at banks in these nations’ have been of home authorities securities that banks can use for repos with central banks, the ranking company stated these banks usually had substantial buffers in opposition to dangers from sudden shifts in investor sentiment, with liquid property exceeding market borrowings in most banking programs.
“We also expect central banks in Asia-Pacific to continue to be proactive in providing liquidity for banks to prevent near-term liquidity stress that can result from a sudden change in economic conditions,” it famous.
“Banks globally are facing a tightening of liquidity amid tighter monetary policy, outflows of excess liquidity built up during the coronavirus pandemic into more profitable investments and increased risk aversion among investors because of stress in the U.S. banking sector,” the worldwide ranking main stated in a be aware on banks in the Asia-Pacific titled ‘Impact of liquidity tightening will be limited as stable deposits underpin funding’.
