New Delhi, Jul 13 (PTI) Moody's Investors Service on Monday said the challenging economic and credit conditions stemming from COVID-19 will weigh on the asset quality and profitability of banks in India and ASEAN countries.

Moody's expects that asset quality and profitability will deteriorate from "good" levels in 2019 across most banking systems, and while government support measures will offset some of the pressure, they will not fully eliminate the negative impact.

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“In ASEAN and India, bank downgrades in 2020 have been driven by Indian banks, following the downgrade of the sovereign in June,” Moody's Vice President and Senior Credit Officer Eugene Tarzimanov said.

Despite the challenging outlook, the majority of banks are adequately capitalized, it added.

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“The challenging economic and credit conditions stemming from COVID-19 will weigh on ASEAN and Indian banks' asset quality and profitability,” Moody's said.

In a report titled 'Banks - ASEAN and India: Asset quality, profitability will weaken as economic challenges grow', Moody's said the largest banks will continue to benefit from deposit inflows as they are seen as safe havens in times of stress.

Moody's expects the GDP of most ASEAN economies and India to contract in 2020 and gradually recover in 2021.

The relaxation in lockdowns and resumption of economic activity will be key factors supporting the recovery, it added.

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