Indian And Asian Banks Show Stronger Capital Health Than Western Peers: Moody’s

Moody’s latest survey shows that banks in the Asia–Pacific region are in better capital shape than many lenders in the US and Western Europe. The rating agency compared the biggest banks across major markets and found that Asia–Pacific lenders have built up strong capital buffers thanks to tighter and more conservative regulatory oversight.

According to the study, the risk-weighted asset (RWA) profiles of large banks in the region closely match their actual credit losses over the last decade. This suggests that the risks assigned to their assets generally reflect real on-ground conditions. Moody’s also pointed out that RWA levels aren’t uniform across Asia–Pacific—each market shows its own pattern. RWAs basically measure how risky a bank’s assets are:

higher RWA density means a bank is holding more high-risk assets on its books.

One of the standout findings is the strong capital position of India’s major private sector banks.
Moody’s noted that these banks have maintained high CET1 capital and leverage ratios because their internal capital generation has been faster than their RWA growth in recent years. They also have easy access to equity markets whenever they need fresh funds. CET1, made up of retained earnings and equity capital, is the primary buffer against financial stress.

Stronger CET1 ratios mean banks are better equipped to absorb shocks without putting depositors at risk.

By end-2024, the average CET1 ratios in Hong Kong, India and Korea stood at 18.0%, 14.7% and 14.5%, respectively—comfortably above the 13.5% reported by the four biggest US banks and the 13.8% posted by the top six lenders in Western Europe.

While Moody’s says most Asia–Pacific banks can raise capital relatively easily, it also highlights that state-owned banks continue to lag behind private banks in terms of capital strength and leverage.

The report links higher RWA densities in India, Vietnam and some Chinese institutions to their continued use of the standardised approach for calculating risk weights—an approach based on preset regulatory norms instead of internal risk models. India plans to allow banks to shift to the more advanced Internal Ratings-Based (IRB) framework by 2028, which could help bring down RWA densities if implemented well.

For India, the survey covered SBI, Axis Bank, ICICI Bank and HDFC Bank, which together accounts for nearly half of the country’s total banking system assets. Overall, Moody’s examined 35 major banks across eight Asia–Pacific systems, representing around 75% of the assets of all rated banks in the region.