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APAC Banks to Face Portfolio Valuation Losses As Yields Rise

The latest data suggest that Fitch-rated banks in Hong Kong, India, Indonesia, Malaysia and Taiwan have the largest AFS securities portfolios, and display particular sensitivity to changes in yields.

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Fitch Ratings-Hong Kong/Singapore-21 March 2021: A rise in yields for long-dated sovereign bonds will result in near-term losses for Asia-Pacific (APAC) banks as they recognise valuation changes on their available-for-sale (AFS) bond portfolios, but the capital impact should be manageable for most rated banks, says Fitch Ratings.

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Correlation between banks’ valuations of AFS securities and changes in domestic yields has historically been strong in some APAC markets, as gains and losses are marked to market in the quarter they occur.

The latest data suggest that Fitch-rated banks in Hong Kong, India, Indonesia, Malaysia and Taiwan have the largest AFS securities portfolios, and display particular sensitivity to changes in yields.

In Indonesia and Malaysia, for example, AFS revaluation losses were equivalent to 10%-15% of operating income when yields rose by 50bp or more, resulting in a correlation coefficient of nearly -90% during 2012-2016.

Related Fitch Ratings Content: Impact of Rising Yields on APAC Banks

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