Fitch expects SL to report broadly improved banking sector results in 2024

Fitch Ratings expects greater divergence in the performance of banking sectors in Asia Pacific (APAC) in 2024, with five countries set to report broadly improving results and three to see deterioration. These outlooks stand in contrast to those leading into 2023, when we projected a broadly stable performance for the vast majority of APAC banking sectors, with only our outlook on Sri Lanka judged to be deteriorating at that time.

The difference in outlooks is particularly marked between banking sectors in APAC emerging markets (EM) and developed markets (DM). All five of the countries where we expect an improving performance are EMs: India, Indonesia, Sri Lanka, Thailand and Vietnam. By contrast, we expect a deteriorating performance in the DMs of Australia and New Zealand, with China the only EM where the outlook is deteriorating.

Banking sector outlooks among many APAC EMs are generally supported by our robust economic growth projections. Growth should buoy loan demand and limit

the potential adverse effects on asset quality from interest rates, which we believe have largely peaked across the region. The markets where our (relatively short-term) sector outlooks are improving align well with our view on (longer-term) bank operating environment scores, which are positive in Indonesia and Vietnam, while the score on India was raised in 2023.