Fitch has reviewed the key trends for banks in Asia, ex-Japan and found that they have remained generally good - for the most part, banks in Asia achieved good levels of profitability, stable or improving asset quality and adequate or strong capitalisation.

In January this year, the agency issued a report discussing the prospects for Asian banks in 2008, and noted that despite the credit crisis economic growth remained strong in Emerging Asia. Fitch expected growth to slow in Emerging Asia in 2008 but to a still robust 8%, led by growth in China. Based on this outlook, Fitch expected to see, as a regional trend, slower growth in lending and underlying earnings and a modest increase in NPLs from their recent lows. There was, however, little sign of this in the first half numbers with results mostly in line with or exceeding the agency's somewhat cautious forecasts.

However, Fitch notes that global growth has slowed more than it initially expected in 2008 and that growth will be slow in the developed economies in 2009. Fitch's forecast for 2008 growth rates for Emerging Asia have also come down, but only slightly, in part because actual growth for 2007 came in well above previous expectations.

It was the agency's expectation that negative trends would be more apparent in the second half of 2008 and the recent turmoil in global financial markets, stemming from the ongoing credit crisis centred on the US, is likely to exacerbate these. So far in 2008 in Asia we have seen some adverse developments: Vietnam is experiencing high inflation and some stress in its financial system; India's Long-term local currency Issuer Default Rating has been placed on Negative Outlook due to high domestic debt and a weak fiscal position; Thailand is experiencing a political crisis although this has yet to impact its banks which got off to a good start in 2008; China has seen its stock markets crash and signs of weakness emerge in its property markets; and concerns have revived over Korea's external borrowings. Exposure to Lehman Brothers will result in some additional credit costs during 2008 but for most banks in Asia ex-Japan, such exposures are not very material.

In summary, banks in Asia generally continued to perform well in the first half of 2008 but they face growing challenges arising from external shocks and the slowdown in both their domestic economies and in global growth. The extent of this slowdown is not yet clear as it depends on how the credit crisis plays out and how seriously troubles in the financial sector impact the real economy.