Asia-Pacific banks' stablecoin involvement carries risks: Fitch

By Ovunc Kutlu

ANKARA (AA) - There are certain risks linked to the growing number of banks in the Asia-Pacific region involved in stablecoins, Fitch Ratings warned on Monday.

Though existing stablecoin projects are currently too small to affect bank ratings, the global rating agency said, banks may be able to use them in the longer run to help speed up settlements, reduce security costs, or provide other service improvements.

However, Fitch warned that stablecoin issuances may present financial and operational challenges for banks, which could offset their potential franchise enhancements and expose them to negative ratings.

"It may also be harder for APAC (Asia-Pacific) banks to achieve commercially viable levels of issuance for stablecoins linked to local currencies, which are less liquid than US dollar markets," it said in a statement.

Fitch also warned that certain aspects could be credit negative for banks if their stablecoin-related projects lack appropriate technological and compliance frameworks to manage operational, cybersecurity, and "know-your-customer" risks.

"Consultation with regulators may help to mitigate some risks, and is required for local currency stablecoin issuance in some APAC markets, such as Thailand, Singapore and Japan," the statement added.

Stablecoins, which are digital coins whose prices are stabilized to a traditional currency, saw supply growth of nearly six-fold from $29 billion in January 2021 to $165 billion in January 2022.