Asia a limited problem for Japanese banks

Asia a limited problem for Japanese banks

TOKYO (Reuters): Asia's financial crisis will cause only limited problems for Japanese banks, although they are the region's major creditors, bankers and analysts say.

Japanese lending in the region is not necessarily riskier than that of European or U.S. banks, because not only do Japanese banks do a lot business with offshore Japanese firms, but they have been lowering their presence in Asia recently, they said.

Many Japanese banks established themselves in Asia before their competitors did and many borrowers are companies related to Japanese manufacturers, they said.

"We tapped into Asia decades ago to set up a base for Japanese companies to do business there," said a senior manager at a major Japanese bank, who declined to be named.

"Unlike European banks, Japanese banks were cautious about lending to Asia during the critical six-month period before the regional currency turmoil began in July," said Ryozo Hattori, an analyst at Daiwa Institute of Research Ltd.

Thailand's devaluation of its currency last July sparked a regional financial crisis which resulted in the International Monetary Fund providing rescue packages worth a total of more than $100 billion for Indonesia, South Korea and Thailand.

According to data of the Bank for International Settlements, the share of Japanese banks among foreign banks' loans to Asia edged down by the middle of last year.

It fell to 31.8 percent at the end of June 1997, down from 32.3 percent at the end of 1996 and from around 39 percent in 1994. In contrast, European banks had increased their share to 43.8 percent by the end of June 1997, up from 42.2 percent six months earlier.

Daiwa's Hattori said borrowers in Thailand are mostly companies of Japanese origin, and there are few loans to insolvent Thai financing companies.

Thailand ranks third behind Hong Kong and Singapore in terms of Japanese bank lending to Asia.

Because South Korea is fourth, Japanese banks found some relief last week when international creditors agreed with a plan to exchange short-term debt to the nation for new long-term loans.

But the analysts and bankers said major banks, including the top creditor to Asia, Bank of Tokyo-Mitsubishi Ltd (BTM) , may have to add at least some risk provisions, given worsening in credit ratings of their loans to the region.

"Japanese major banks' business results in 1997/98 will be lightly influenced by the Asia issue, and that may continue into 1998/99," said Naohiko Hasegawa, an analyst at Nikko Research Center Ltd.

Deutsche Bank AG , also a big creditor to Asia, said last week its exposure to Asia dampened 1997 operating profits.

The bank's credit exposure to South Korea, Thailand, Malaysia and Indonesia amounted to nine billion marks (US$4.92 billion), for which it said it was setting aside one billion marks in risk provisions. A further 400 million marks was being set aside to cover other Asian risk.

According to BIS data, Japanese banks' exposure to these four countries totaled $95.1 billion at the end of June 1997.

Exposure of German banks, the second-largest creditors to these nations, totaled at $29.7 billion.

"Major Japanese banks' lending to Asia may have some impact on their business, but this will be negligible in the year ending next March because their domestic problem loan mess is massive," said Daiwa senior analyst Akira Takai.

BTM said when it closed its books last September that problem loans of its branches in South Korea, Thailand, Malaysia, Indonesia, Hong Kong, Singapore, China, Taiwan and the Philippines amounted to 0.15 percent of its total exposure to the region. That ratio was much smaller than the bank's bad debt ratio versus total loans, which was 2.11 percent.

BTM's total lending to these nations was $27.4 billion at the end of September.

BTM is one of the few Japanese banks to disclose country-by- country exposure figures.

A spokesman at Sanwa Bank said it had a total 2.5 trillion yen ($19.6 billion) worth of loans to Asia at the end of September and had set aside sufficient funds then to cover that exposure.

"We understand the situation is changing... We will disclose information when needed," the spokesman said.