"We have already witnessed the region's portfolio of ratings move from the positive bias it enjoyed for the past three years into a negative bias," said regional chief credit officer, Ian Thompson. "The number of credits on negative outlook  represents around 19 per cent versus 5 per cent on positive. This, along with an enlarged portfolio of credit in the lower bands of our rating scale (what we call "speculative grade") suggests further downgrades and likely defaults," added Thompson.

The ratings agency expects some defaults from entities in south and south-east Asia including India that are already in the "B" category.

The ratings agency expects Indian banks' property-related portfolios to experience stress in 2009 given the declining property prices. The bearish market is likely to take the shine off trading and fee incomes for many south and south-east Asian banking systems.

However, these banks are more at risk from the global economic slowdown and market turmoil than from direct exposure to distressed US financial institutions. In India, although the banking system's indebtedness does not appear to be high, recent rapid growth is a cause of concern, says the report.

S&P expects companies that rely on consumer discretionary spending to go through a rough patch in 2009. This would include sectors like retail, real estate and transportation.

"We expect a generally stable outlook for companies related to commodities (individual leverage levels aside) such as oil, mining, grains, and palm oil. Demand is expected to remain sound and prices are likely to remain relatively high, though not necessarily at record levels," say analysts Ritesh Maheswari and Elena Okorotchenko.