Tightening measures are hitting APAC banks more than Basel reforms

Lenders still need to launch extensive Basel implementation plans.

Macroprudential regulations are seen as having a greater near-term impact on the operating environment and credit profiles of APAC banks than the adoption of Basel III global standards, according to credit rating agency Fitch.

Also read: Bad debt burden delays Basel III adoption in Indian banks

“Macroprudential tightening typically has a positive long-term influence on bank ratings,” Fitch said in a report. “[I]t should tackle asset-quality risks to the extent that it limits the build-up of credit and asset bubbles and dampens banks' risk-taking during cyclical upswings.”

On the other hand, Basel reforms take longer to materialise although they will play a positive role over the longer term as rules are fully enforced.

Banks in the region, however, need to step up implementation efforts and planning as only Australia has the only regulator with endgame rules. Korea plans to issue a consultation paper before the year ends.

In fact, Fitch noted in an earlier report that Basel III implementation may be delayed in APAC amidst a general reluctance on the part of regulators to take action. 

"Only Singapore in APAC stuck to the agreed timeline, and it has applied transitional arrangements. Korea and India have rules scheduled to come into effect in January 2018, whilst those in Hong Kong, Australia and Indonesia are at the draft stage. Taiwan's rules are final, but their implementation has been delayed to align with other jurisdictions," the credit rating agency said in a report last year

Macroprudential tools used to dampen credit supply and cool property markets include loan-to-value limits and risk-weight floors, as well as reserve requirements for deposits, stamp duties, taxes and countercyclical capital buffers.

“Measures focused on lending standards, capital and liquidity and funding profiles can also improve banks' resilience to downturns,” Fitch added. 

For instance, Singapore raised stamp duty and lowered loan-to-value limits in early July which is widely expected to dampen lending in the next year. Korea also plans to introduce a bank-specific Pillar 2 add-on and a sectoral countercyclical buffer for household exposure from 2019.