Moody’s Investors Services announced today its decision to review for downgrade the subordinated debt ratings of 41 banking groups across eight banking systems in the Asia Pacific.


The credit rating agency said that its decision arose due to its recent change in its assumptions about the likelihood of government support for holders of subordinated debt (subdebt). The subsets rank after other types of debt if a company fails.

Moody’s Highlighted:

However the rating agency highlighted that reviews of the banks’ subdebt ratings are not in any way related to any deterioration in the affected banks’ fundamental credit quality.

The list of affected banks encompasses almost all the major countries in the Asia Pacific. The list covers 8 banks each in Australia and Korea, 11 banks in India, 5 banks in Hong Kong, three banks each in Singapore and Thailand, 2 banks in Philippines and one bank in Taiwan.

While the list includes Australia’s eight largest banks, the Korean banks covered include Kookmin Bank, Woori Bank, Shinhan Bank, Hana Bank, Korea Exchange Bank (KRX:004940), Industrial Bank of Korea (KRX:024110), Suhyup Bank  and Busan Bank.

Similarly the Indian banks include the country’s largest lender State Bank of India and its nearest competitor ICICI Bank Limited (NYSE:IBN) (NSE:ICICIBANK) Others included in the list are: Axis Bank Ltd. (LON:AXB) (BOM:532215), Bank of Baroda (NSE:BANKBARODA), Bank of India (BOM:532149), Canara Bank (NSE:CANBK), HDFC Bank Limited (NYSE:HDB), Indian Overseas Bank (BOM:532388) (NSE:IOB), Syndicate Bank Ltd. (BOM:532276) and Union Bank of India (NSE:UNIONBANK).

During the recent global financial meltdown, local governments provided support to struggling banks through equity infusion that shielded bondholders from wearing losses. However, currently there is an increasing push for bondholders to receive a ‘hair cut’ when a bank gets into financial difficulties. This was evident in the recent International Monetary Fund package to save the Cypriot Banks.

Moody’s Report:

According to Moody’s report, Europe and North America took bold measures by empowering regulators to impose losses on subdebt holders when dealing with banks facing difficulties. However such measures are not evident in Asia Pacific. The regulators in Asia Pacific are focusing more on ensuring Basel III compliant capital securities designed to absorb losses.

The rating agency’s report notes that in the absence of banking crisis or bail-outs, the Asia Pacific region’s regulators may be more inclined to adopt tools deployed in other countries. This could include coercing subdebt holders to enter into a distressed exchange.

Moody’s expects to conclude its review within the next three months.