One of the world's "big three" credit rating agencies takes a look at the emerging market countries of the ASEAN region and predicts the financial trajectory of their banks.

The net interest margin of emerging market banks in most ASEAN nations (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) should be supported as higher interest rates remain in force during next year, according to Fitch Ratings.

The report did not cover Singaporean banks.

Rate rises should benefit Thai banks in 2024, as high current and savings account deposit ratios help banks to pass rate increases on to borrowers while holding down deposit-funding costs, the ratings agency said. NIMs in Indonesia are also likely to widen as repayment resumes of loans currently under moratorium.

Vietnam’s policy easing has relieved pressure on banks' funding costs, and we project a recovery in higher-yielding consumer loans will buoy NIMs in 2024, it said.

As for Malaysia, margins will bottom out by the end of this year and remain flat next year. The Philippines’ margin is likely to decline – albeit from a record high – when domestic policy rates revert to lower levels in the latter half of 2024. This partly reflects the Philippines’ higher proportion of CASA deposits.

Rising rates have caused volatility and challenges for some parts of the bank equation, but after more than a decade of ultra-low/negative rates, higher borrowing costs have enabled banks around the world to improve their margins.

In other comments, Fitch Ratings forecasts GDP growth in ASEAN emerging markets to accelerate in 2024, helping to support a “modest” recovery in loan growth – especially in the Philippines, Thailand and Vietnam. 

“This, coupled with our NIM projections, indicates banking-sector revenue outlooks remain healthy. Adequate pre-provision profit buffers remain to guard against manageable impairment risks,” it said. 

“Our base case has US rates remaining high until at least mid-2024. Any additional rate hikes by the US Federal Reserve will extend the support to NIMs but at the same time increase asset-quality risks. Conversely, should global interest rates decline by more or sooner than we expect, banks may face heavier margin pressure – which could spur growth and risk-taking,” Fitch concluded.