KUALA LUMPUR, July 31 (Bernama) -- Standard and Poor's Ratings Services expects most rated banks in Singapore, Hong Kong and Malaysia to further expand in a measured and prudent fashion over the next several years.

According to a report by the rating services firm, "Regional Expansion by Singapore, Hong Kong, and Malaysian Banks is a Double-Edged Sword," the banks' sound financial profiles, prudent risk management and potential support from respective governments or parent groups are expected to continue to support the ratings in most cases.

"Banks in Singapore, Hong Kong and Malaysia are likely to continue expanding regionally over the next several years to take advantage of higher yields and the growth potential in emerging markets," a credit analyst from the firm, Ivan Tan, said.

He said the increasing linkages among various Asia-Pacific economies and fierce competition in home markets are key factors in the regional expansion of banks in these countries.

However, he said the inherently higher risk and evolving operating conditions in regional economies, are likely to counterbalance the revenue and diversification benefits for these banks.

S&P also acknowledged the growth potential in emerging Asian economies such as China, India, Indonesia and Vietnam due to their sheer population and lower banking penetration.

An analyst at the firm, Terry Sham, said the net interest margins in some of these countries was also significantly higher than in Singapore, Hong Kong and Malaysia.

However, he said that such regional expansion is fraught with risks.

"China, India, Indonesia and Vietnam have lower per capita incomes, higher policy risks, weaker payment cultures and more legal uncertainties than the home markets of these banks," he added.

He said that these in turn could translate into higher credit losses in the case of substantial economic stress.