Corporate credit risk in South-east Asia has come down from March peak: study

CORPORATE credit risk in South-east Asia has come down since peaking in March due to Covid-19, but remains elevated, according to a Moody's Analytics study.

According to Moody's Analytics proprietary Expected Default Frequency model, the average risk of default for many companies in the region doubled from January to March 2020, though still remaining below the levels seen during the Global Financial Crisis (GFC).

With central banks and governments flooding markets with stimulus and liquidity, the risks have since come down from those peaks, but "remain significantly elevated", said the report.

The credit risk of companies in sectors such as energy, transportation, travel, and construction have been particularly hard hit.

Energy was the riskiest sector in Indonesia, Malaysia, and Vietnam, and the second-riskiest sector in Singapore, with an average one-year default probability ranging from 8.3 per cent to 13.4 per cent across those countries.

Transportation was second-riskiest in Indonesia and Malaysia and riskiest in the Philippines, with the default probability ranging from 5.2 per cent to 7.5 per cent.

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The technology and IT services sector has seen average credit risk rise as businesses delay or even cut investment, while the travel, entertainment, and leisure sector has seen risk rise in countries where tourism is an important part of the economy, such as Thailand and the Philippines

While a credit crisis has not yet materialised, if a very severe downturn occurs -- though that is not the base case scenario -- then it would be possible for credit risks to worsen beyond GFC levels, said the report.