Coverage: Q3 2024 · Information to 30 December 2024
Originally Published as TGB Premium Intelligence
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TGB Quarterly Regional Banking Monitor · 30 December 2024
Asia-Pacific central banks turned towards easing in the second half of 2024 while the Bank of Japan tightened, and third-quarter bank data showed strong capital and mostly contained asset quality but pressure on earnings in China and South Korea and on margins in Hong Kong.
The desk view
The region's monetary cycle turned in the third quarter of 2024, but not in one direction. The People's Bank of China cut the reserve requirement ratio by 0.5 percentage point on 27 September, Bank Indonesia cut to 6.00% in September, and the Bank of Korea and the Bank of Thailand followed in October, while the Bank of Japan had raised its policy rate to around 0.25% in July. Banks enter the easing phase with solid buffers: Indian banks reported a gross NPA ratio of 2.54% and Korean banks a CET1 ratio of 13.33% at end-September 2024. The pressure is on earnings and on pockets of credit risk. Chinese banks' return on equity slipped to 8.77%, Korean bank margins fell to 1.52%, Hong Kong's classified loan ratio rose to 1.99%, and the Thai NPL ratio reached 2.97%.
The regional picture
Monetary policy in Asia Pacific moved towards easing during and after the third quarter of 2024, with Japan the main exception. The People's Bank of China cut the reserve requirement ratio by 0.5 percentage point on 27 September 2024, injecting about RMB1 trillion of medium- and long-term liquidity, and cut its 7-day reverse repo rate by 10bp in July and 20bp in September. Bank Indonesia lowered the BI-Rate by 25bp to 6.00% at its 17-18 September 2024 meeting. The Bank of Korea cut its Base Rate from 3.50% to 3.25% on 11 October and to 3.00% on 28 November 2024. The Bank of Thailand cut its policy rate from 2.50% to 2.25% on 16 October 2024 by a 5 to 2 vote.
Others held. The Reserve Bank of India kept the repo rate at 6.50% on 6 December 2024 but eased liquidity through a lower cash reserve ratio. The Reserve Bank of Australia left its cash rate target at 4.35% on 10 December 2024. The Bank of Japan moved the other way: on 31 July 2024 it decided by a 7-2 majority to guide the overnight call rate to around 0.25%, and on 19 December it kept that guideline by an 8-1 vote. The Hong Kong Monetary Authority set its Base Rate at 4.75% on 19 December 2024, following the 25bp cut in the US federal funds target range on 18 December. Inflation readings help explain the split: Korean inflation fell to 1.3% in October 2024, while Indian headline inflation rose to 6.2% in October and the Reserve Bank of Australia judged underlying inflation still too high.
Policy decisions in the second half of 2024
| Economy | Policy rate | Level after last 2024 decision | Decisions |
|---|---|---|---|
| India | Repo rate | 6.50% | Held on 6 December 2024; CRR cut by 50bp to 4.0% |
| China | One-year loan prime rate (benchmark) | 3.1% | 3.35% in September 2024; RRR cut by 0.5pp and 7-day reverse repo rate by 20bp in September 2024 |
| Japan | Overnight call rate guideline | Around 0.25% | Raised on 31 July 2024; held on 19 December 2024 |
| Australia | Cash rate target | 4.35% | Held on 10 December 2024 |
| South Korea | Base Rate | 3.00% | Cut on 11 October and 28 November 2024 |
| Hong Kong | Base Rate | 4.75% | Set on 19 December 2024 by formula |
| Indonesia | BI-Rate | 6.00% | Cut on 17-18 September 2024; held on 17-18 December 2024 |
| Thailand | Policy rate | 2.25% | Cut on 16 October 2024; held on 18 December 2024 |
Source: Reserve Bank of India, Monetary Policy Statement, 2024-25: Resolution of the Monetary Policy Committee, December 4 to 6, 2024, 6 December 2024; Reserve Bank of India, Statement on Developmental and Regulatory Policies (6 December 2024), 6 December 2024; People's Bank of China, Announcement on Loan Prime Rate (December 20, 2024), 20 December 2024; People's Bank of China, China Monetary Policy Report Q3 2024 (November 8, 2024), 8 November 2024; Bank of Japan, Change in the Guideline for Money Market Operations and Decision on the Plan for the Reduction of the Purchase Amount of Japanese Government Bonds, 31 July 2024; Bank of Japan, Statement on Monetary Policy (December 19, 2024), 19 December 2024; Reserve Bank of Australia, Statement by the Reserve Bank Board: Monetary Policy Decision (Media Release 2024-27), 10 December 2024; Bank of Korea, Monetary Policy Decision & Opening Remarks to the Press Conference (October 11, 2024), 11 October 2024; Bank of Korea, Monetary Policy Decision & Opening Remarks to the Press Conference (November 28, 2024), 28 November 2024; Hong Kong Monetary Authority, Adjustment of Base Rate (19 December 2024), 19 December 2024; Bank Indonesia, BI-Rate Lowered 25bps to 6.00%: Maintaining Stability, Strengthening Economic Growth, 19 September 2024; Bank Indonesia, BI-Rate Held at 6.00% Maintaining Stability, Strengthening Economic Growth, 19 December 2024; Bank of Thailand, Monetary Policy Committee’s Decision 5/2024 (BOT Press Release No. 39/2024), 16 October 2024; Bank of Thailand, Monetary Policy Committee’s Decision 6/2024 (BOT Press Release No. 44/2024), 18 December 2024.
Banking data in the region are published on different calendars, so the country sections below mix reference dates: most supervisory figures refer to end-September 2024 or the third quarter of 2024, Australian figures to the September 2024 quarter, and Indonesian figures to October and November 2024.
China: easing arrives as bank returns slip
The People's Bank of China described its monetary policy stance since the beginning of 2024 as accommodative. After the September 2024 cut, the weighted average reserve requirement ratio for financial institutions was 6.6%. The one-year loan prime rate stood at 3.35% and the over-five-year rate at 3.85% in September 2024, and on 20 December 2024 they were 3.1% and 3.6%. That is a 25bp reduction in the one-year rate from its September level. Major commercial banks also began adjusting the interest rates on existing mortgages in batches on 25 October 2024. Aggregate financing to the real economy grew 8.0% and M2 6.8% year on year at end-September 2024, and new RMB loans in the first three quarters totalled RMB16 trillion.
The National Financial Regulatory Administration's third-quarter data show a large system with stable reported asset quality and thinner returns. Total assets of banking institutions were RMB439.5 trillion at end-Q3 2024, up 7.3% year on year. The NPL ratio of commercial banks was 1.56%, basically unchanged from the previous quarter, while outstanding NPLs rose by RMB37.1 billion to RMB3.4 trillion. Special-mention loans stood at RMB4.9 trillion. Commercial banks earned net profit of RMB1.9 trillion in the first three quarters of 2024, up 0.5% year on year. Average return on equity fell 0.14 percentage point on the quarter to 8.77%, and return on assets fell 0.01 percentage point to 0.68%.
Buffers edged up. Provision coverage was 209.48% at end-Q3 2024, and the loan provision ratio 3.27%. The capital adequacy ratio rose 0.08 percentage point to 15.62%, and the core tier 1 ratio rose 0.12 percentage point to 10.86%. The liquidity coverage ratio rose 2.59 percentage points to 153.29%. The People's Bank of China itself named banks' net interest margin as a constraint on further rate cuts and has taken measures to stabilise it. With profit growth of 0.5% and a stable NPL ratio, margins rather than reported bad loans are the main constraint on Chinese bank earnings.
India: strong balance sheets, liquidity support
The Reserve Bank of India's Monetary Policy Committee kept the repo rate at 6.50% on 6 December 2024 and continued with a neutral stance. Headline CPI inflation had risen above the upper tolerance level to 6.2% in October 2024, from 5.5% in September. Instead of cutting rates, the Reserve Bank reduced the cash reserve ratio by 50bp, in two tranches of 25bp, to 4.0% of net demand and time liabilities from the fortnights beginning 14 December and 28 December 2024. The cut releases about ₹1.16 lakh crore of primary liquidity to the banking system.
Indian asset quality kept improving. The gross NPA ratio of scheduled commercial banks was 2.54% at end-September 2024, the lowest since March 2011. The annualised slippage ratio was 1.35%, against 1.70% a year earlier. In September 2024 the provision coverage ratio was 76.79%, the capital to risk-weighted assets ratio 16.77% and the liquidity coverage ratio 128.59%. Annualised return on assets was 1.40%, return on equity 14.58% and the net interest margin 3.52%. Credit grew 12.4% and deposits 11.6% year on year as of 15 November 2024. With deposit growth trailing credit growth, the liquidity released by the reserve ratio cut supports bank funding.
Japan: the region's tightening outlier
The Bank of Japan's 31 July 2024 decision set the overnight call rate guideline at around 0.25%, effective from 1 August 2024. It also adopted a plan to reduce monthly purchases of Japanese government bonds by about 400 billion yen each calendar quarter, to about 3 trillion yen in January-March 2026. On 19 December 2024 it kept the guideline unchanged, noting that CPI inflation excluding fresh food had recently been in the range of 2.0-2.5%.
The Bank's October 2024 Financial System Report, which basically uses data available as of end-September 2024, assessed that the financial system had been maintaining stability on the whole. It found that Japanese banks had sufficient capital and stable funding to withstand stress similar to the global financial crisis. Interest rates on ordinary deposits had risen to around 0.1%. Banks' resilience to rising yen interest rates had been increasing as they shortened the duration of their yen bond holdings. The report also noted that defaults had been increasing, especially among firms whose profits were improving only slowly. Japanese banks therefore face the reverse of the regional pattern: rising rates, with credit risk concentrated in weaker firms.
South Korea: two cuts and narrower margins
The Bank of Korea cut its Base Rate by 25bp on 11 October 2024 and by a further 25bp on 28 November, to 3.00%. That took the cumulative reduction to 50bp. Consumer price inflation had fallen to 1.3% in October, and the Bank cut its growth forecasts to 2.2% for 2024 and 1.9% for 2025, from 2.4% and 2.1%.
Korean bank earnings weakened in the third quarter of 2024. Preliminary net income of domestic banks was KRW6.2 trillion in Q3 2024, down 13.9% from KRW7.2 trillion in Q2 2024. Return on assets fell 0.12 percentage point to 0.65% and return on equity 1.83 percentage points to 8.55%. The net interest margin fell to 1.52% in Q3 2024 from 1.60% in Q2 2024 and 1.63% in Q1 2024. Interest income fell 1.9% on the quarter to KRW14.6 trillion as the loan-deposit margin narrowed. The margin decline in the third quarter came before either Base Rate cut.
Capital and asset quality held up. The total capital ratio of domestic banks was 15.85% at end-September 2024, up 0.09 percentage point, and the CET1 ratio rose 0.15 percentage point to 13.33%. The substandard-or-below loan ratio was 0.53%, unchanged on the quarter, with SBLs of KRW14.5 trillion.
Australia: rates on hold, profits lower
The Reserve Bank of Australia left the cash rate target at 4.35% on 10 December 2024 and said underlying inflation remained too high. National accounts for the September quarter showed the economy grew by only 0.8% over the past year.
The Australian Prudential Regulation Authority's statistics for the September 2024 quarter show well-capitalised banks with lower annual profits. Net profit after tax of authorised deposit-taking institutions was $39.0 billion in the year to September 2024, down 7.4% from $42.2 billion. The total capital ratio rose to 20.2% from 19.8%. Residential mortgage credit grew 4.7% to $2,288.5 billion. Non-performing loans rose to 1.1% of mortgage credit from 0.8% a year earlier, though APRA said overall asset quality remained sound. Loans with a loan-to-valuation ratio of 80% or more made up 31.1% of new mortgage lending in the September 2024 quarter, against 28.7% a year earlier.
Hong Kong: rising classified loans
The Hong Kong Monetary Authority's review of the third quarter of 2024 shows a rise in classified loans alongside strong capital and liquidity. The classified loan ratio of the banking sector rose to 1.99% at end-September 2024 from 1.89% at end-June, and for Mainland-related lending it edged up to 2.79% from 2.78%. Delinquency ratios for credit card lending and residential mortgages remained low at 0.35% and 0.11%.
Balance sheets shrank on the lending side. Total loans fell 0.2% in the third quarter of 2024 and Mainland-related lending fell 1.3%, while total deposits rose 2.5%. Retail banks' pre-tax operating profit rose 8.4% year on year in the first three quarters of 2024, mainly because of trading-investment and foreign exchange income, partly offset by lower net interest income. Their net interest margin narrowed to 1.50% from 1.68% a year earlier. The total capital ratio of locally incorporated authorised institutions was 21.8% at end-September 2024, and the average liquidity coverage ratio of category 1 institutions was 178.4% in the third quarter.
Singapore: Basel III lifts reported capital
The Monetary Authority of Singapore's 2024 Financial Stability Review put the aggregate CET1 capital adequacy ratio of the local banking groups at 16.7% as of Q3 2024. The ratio rose from 14.0% a year earlier, largely because of the phased adoption of the final Basel III reforms from 1 July 2024. The banking system's overall NPL ratio improved to 1.4% as of Q3 2024, and total provisioning coverage rose to 119.9% from 111.1% a year before. The local banking groups' NPL ratio improved slightly to 1.14%, with provisioning coverage of 252%. Housing NPL ratios stayed low at 0.3%. MAS said the local banking groups had registered healthy net profits in 2024 as both net interest income and non-interest income rose.
Indonesia: one cut, then a currency focus
Bank Indonesia's September 2024 cut lowered the deposit and lending facility rates to 5.25% and 6.75%, alongside the BI-Rate at 6.00%. It held all three rates at its 17-18 December 2024 meeting, saying the focus of monetary policy was on strengthening Rupiah stability in response to heightened global uncertainty. Bank credit grew 10.79% year on year in November 2024. The capital adequacy ratio was 27.02% in October 2024, with NPL ratios of 2.20% gross and 0.77% net. The ratio of liquid assets to third-party funds was 25.57% in November 2024.
Thailand: credit contraction and rising NPLs
The Bank of Thailand's Monetary Policy Committee cut the policy rate by 0.25 percentage point on 16 October 2024, with most members citing the need to alleviate the debt-servicing burden for borrowers. On 18 December 2024 it voted unanimously to keep the rate at 2.25%.
Thai banking-system loans contracted 2.0% year on year in the third quarter of 2024, mainly because of high debt repayments by the government and large corporates. Gross NPLs rose to 553.4 billion baht, an NPL ratio of 2.97%, and stage 2 loans rose to 6.86% of loans. Profitability improved year on year on higher FVTPL profit while net interest income declined. On a bank-only basis, return on assets was 1.19% and return on equity 8.72% in the third quarter, against 1.10% and 8.19% a year earlier. The capital (BIS) ratio, also on a bank-only basis, was 20.5% in the third quarter, against 19.9% a year earlier. The Bank of Thailand said weaker debt serviceability could cause a gradual increase in NPLs but saw no immediate risk of an NPL cliff.
Cross-country comparison
Asia-Pacific banking indicators (reference period in brackets)
| Economy | Capital | Asset quality | Profitability |
|---|---|---|---|
| China | CAR 15.62% (end-Q3 2024) | NPL ratio 1.56% (end-Q3 2024) | ROE 8.77%; ROA 0.68% (Q3 2024) |
| India | CRAR 16.77% (Sep 2024) | Gross NPA 2.54% (end-Sep 2024) | ROA 1.40%; ROE 14.58% (Sep 2024) |
| Australia | Total capital ratio 20.2% (Sep 2024) | Mortgage NPLs 1.1% (Sep 2024) | NPAT $39.0bn, down 7.4% (year to Sep 2024) |
| South Korea | CET1 13.33% (end-Sep 2024) | SBL ratio 0.53% (end-Sep 2024) | ROA 0.65%; NIM 1.52% (Q3 2024) |
| Hong Kong | Total capital ratio 21.8% (end-Sep 2024) | Classified loans 1.99% (end-Sep 2024) | Retail-bank NIM 1.50% (first three quarters of 2024) |
| Singapore | Local groups' CET1 16.7% (Q3 2024) | System NPL ratio 1.4% (Q3 2024) | Not available |
| Indonesia | CAR 27.02% (Oct 2024) | Gross NPL 2.20% (Oct 2024) | Not available |
| Thailand | BIS ratio 20.5%, bank-only (Q3 2024) | NPL ratio 2.97% (Q3 2024) | ROA 1.19%; ROE 8.72%, bank-only (Q3 2024) |
Source: National Financial Regulatory Administration (China), Supervisory Statistics of the Banking and Insurance Sectors - 2024 Q3, 22 November 2024; Reserve Bank of India, Governor's Statement: December 6, 2024, 6 December 2024; Australian Prudential Regulation Authority, APRA releases quarterly authorised deposit-taking institution statistics for September 2024, 12 December 2024; Financial Supervisory Service (Korea), Capital Ratios of Banks and Bank Holding Companies, September 2024, 27 November 2024; Financial Supervisory Service (Korea), Domestic Banks’ SBLs, September 2024, 29 November 2024; Financial Supervisory Service (Korea), Bank Earnings, Third Quarter 2024, 18 November 2024; Hong Kong Monetary Authority, Developments in the Banking Sector, HKMA Quarterly Bulletin, December 2024, 23 December 2024; Monetary Authority of Singapore, Financial Stability Review 2024, 27 November 2024; Bank Indonesia, BI-Rate Held at 6.00% Maintaining Stability, Strengthening Economic Growth, 19 December 2024; Bank of Thailand, Banking Sector Quarterly Brief (Q3 2024), 26 November 2024.
The comparison shows strong capital everywhere on the published measures, with the clearest asset-quality pressure in Thailand and Hong Kong, and lower returns on equity in China, South Korea and Thailand than in India. India combines a return on equity of 14.58% with a gross NPA ratio at its lowest since March 2011.
Outlook risks
Margin compression is the main earnings risk as rates fall. Korean banks' margin fell to 1.52% before either Base Rate cut, and Hong Kong retail banks' margin had narrowed to 1.50%. In China, lower lending rates and repriced existing mortgages are likely to weigh on returns that had already slipped to 8.77% on equity. Credit risk is concentrated rather than broad: the Bank of Japan pointed to rising defaults among firms with slowly improving profits, Thailand's stage 2 loans reached 6.86%, and Hong Kong's Mainland-related classified loan ratio stood at 2.79%. In Australia, mortgage NPLs of 1.1% and a higher share of new lending at loan-to-valuation ratios of 80% or more warrant monitoring with the cash rate at 4.35%. In Indonesia, the central bank's focus on Rupiah stability makes the timing of any further easing uncertain.
What to watch
- 5 to 7 February 2025: next meeting of the RBI Monetary Policy Committee, after the 6.50% hold and two votes for a 25bp cut in December.
- Each calendar quarter to January-March 2026: Bank of Japan reductions of about 400 billion yen in monthly JGB purchases.
Primary sources: National Financial Regulatory Administration (China), Supervisory Statistics of the Banking and Insurance Sectors - 2024 Q3, 22 November 2024; People's Bank of China, China Monetary Policy Report Q3 2024 (November 8, 2024), 8 November 2024; Bank of Korea, Monetary Policy Decision & Opening Remarks to the Press Conference (October 11, 2024), 11 October 2024; Bank of Korea, Monetary Policy Decision & Opening Remarks to the Press Conference (November 28, 2024), 28 November 2024; Bank Indonesia, BI-Rate Lowered 25bps to 6.00%: Maintaining Stability, Strengthening Economic Growth, 19 September 2024; Bank of Thailand, Monetary Policy Committee’s Decision 5/2024 (BOT Press Release No. 39/2024), 16 October 2024; Bank of Japan, Change in the Guideline for Money Market Operations and Decision on the Plan for the Reduction of the Purchase Amount of Japanese Government Bonds, 31 July 2024; Financial Supervisory Service (Korea), Bank Earnings, Third Quarter 2024, 18 November 2024; Hong Kong Monetary Authority, Developments in the Banking Sector, HKMA Quarterly Bulletin, December 2024, 23 December 2024; Financial Supervisory Service (Korea), Capital Ratios of Banks and Bank Holding Companies, September 2024, 27 November 2024; Monetary Authority of Singapore, Financial Stability Review 2024, 27 November 2024; Reserve Bank of India, Governor's Statement: December 6, 2024, 6 December 2024; Bank of Thailand, Banking Sector Quarterly Brief (Q3 2024), 26 November 2024; Reserve Bank of India, Monetary Policy Statement, 2024-25: Resolution of the Monetary Policy Committee, December 4 to 6, 2024, 6 December 2024; Reserve Bank of India, Statement on Developmental and Regulatory Policies (6 December 2024), 6 December 2024; Reserve Bank of Australia, Statement by the Reserve Bank Board: Monetary Policy Decision (Media Release 2024-27), 10 December 2024; Bank of Japan, Statement on Monetary Policy (December 19, 2024), 19 December 2024; Hong Kong Monetary Authority, Adjustment of Base Rate (19 December 2024), 19 December 2024; People's Bank of China, Announcement on Loan Prime Rate (December 20, 2024), 20 December 2024; Bank Indonesia, BI-Rate Held at 6.00% Maintaining Stability, Strengthening Economic Growth, 19 December 2024; Bank of Thailand, Monetary Policy Committee’s Decision 6/2024 (BOT Press Release No. 44/2024), 18 December 2024; Australian Prudential Regulation Authority, APRA releases quarterly authorised deposit-taking institution statistics for September 2024, 12 December 2024; Bank of Japan, Financial System Report (October 2024), 24 October 2024; Financial Supervisory Service (Korea), Domestic Banks’ SBLs, September 2024, 29 November 2024.