Fitch Ratings warned that it might downgrade China's credit rating within two years as the country's banks struggle with debt loads following a lending surge to help lift the economy during the 2008 financial crisis.
It also said that Japan, weighed down by a public debt load twice the size of the 5 trillion dollars economy, faced a greater-than-even chance of a downgrade in part due to a political impasse that is stalling plans to clean up its finances.
Asia's two biggest economies are in the ratings firing line alongside Europe and the United States as they deal with massive debts built up during the global financial crisis.
Andrew Colquhoun, head of Asia-Pacific sovereign ratings at Fitch, told Reuters in an interview that China's local currency debt rating could be downgraded over the next 12 to 24 months.
We expect a material deterioration in bank asset quality, he said. If the problems in the banking system pan out as we expect or are even worse over the next 12 to 24 months, then that would incline us to take the rating downwards.
Fitch downgraded the outlook on China's long-term local currency debt to negative from stable in April because of concerns about the country's financial stability following a lending surge encouraged by Beijing to help maintain economic growth during the global downturn.