The year 2016 is a challenging year for the metals and mining sector, and banks in India and Asia-pacific will be hit.
Banks in Asia-Pacific and India will be hit due to the ripple effects of the problems in the commodities-related sector. Asset qualities of banks in Mongolia, Singapore, Korea, Indonesia and India are exposed to the more vulnerable parts of the energy/commodity sectors, such as oil services, offshore marine, shipping and shipbuilders, and metals & mining and steel, says the Moody’s report.
The report said that in or metals and mining, banks in Mongolia, India, Indonesia and China are more exposed. Moody’s expects 2016 to be another challenging year for metals and mining firms, leading to higher problem loans and weak recoveries for existing problem and restructured loans.
The report points out that Indian steelmakers will stay under pressure due to the glut in regional supplies and the fall in steel prices, and went to highlight that recent improvement in prices was largely driven by speculative trading and inventory shortages. The rating agency does not expect the improvements in the steel prices to persist in the second half of this calendar.
The report further says that for major Indian steel mills like Tata Steel and JSW Steel , the ramp-up of new steel production capacity, resumption of captive iron ore production, and the government’s introduction of minimum import prices will help them mitigate earnings pressure in 2016.