Asia still a long way from precrisis ratings
Asia still a long way from precrisis ratings
SINGAPORE (Reuters): Asia's unexpectedly speedy recovery has
sparked hopes of further ratings upgrades, but beyond the
positive headlines and data, much still needs to be done for a
return to pre-crisis credit ratings.
Many countries -- notably Thailand, Indonesia and South Korea
-- need to clean up their messy financial sectors before they can
regain the confidence of investors, analysts say.
In broader terms, the region's credit outlook hinges heavily
on its ability to sustain growth and recovery.
"The economic cycle has started to recover rather faster than
anyone had expected," said Takahira Ogawa, Standard & Poor's
director of sovereign ratings.
"But the credit cycle normally lags the economic cycle. We
still have some way to go to come back completely to the credit
quality before the crisis. It would depend on the future
direction and structural reforms of individual countries," he
told Reuters.
The Asian crisis forced troubled countries to resort to
drastic measures such as devaluing their currencies, imposing
exorbitantly high real interest rates and often painful corporate
reform, and seeking international aid.
The severe stress sent their sovereign and corporate credit
ratings plunging as default risks heightened.
But the region bit the bullet and has managed to pull through.
Most affected countries, particularly South Korea and
Malaysia, have had their ratings upgraded due to a stronger-than-
expected recovery.
Indonesia's credit quality remains under severe pressure amid
political risks faced by President Abdurrahman Wahid. S&P put its
rating on CreditWatch Negative to reflect concerns about the
country's political and fiscal challenges.
Banking sectors in many countries are poorly supervised and
awash with non-performing loans that cramp their ability to lend.
The Thai financial sector's non-performing loans stood at an
average of 38 percent of total credits at end-1999 and markets
and analysts worry about restructured loans turning sour again.
South Korea's non-performing loans were estimated at 10.1
percent of total credits in the third quarter of last year, but
that level could surge if Daewoo's debt restructuring collapses.
Credit analysts said they are closely monitoring Asia's asset
quality, recapitalization efforts and how the capital is used as
criteria for further upgrades.
"Since the financial sector is enormously important to the
health of any economy, the quality of sovereign credits is
closely linked to it," said David Marshall, managing director of
Asian financial institutions at Fitch IBCA.
Despite the speed of the recovery, analysts point out that it
will be difficult for countries like South Korea, Malaysia and
Thailand to be restored to single-A status without clear signs of
sustainable growth.
The risks of Japan's recession being prolonged or the U.S.
economy facing a downturn also cloud Asia's ratings outlook.
The following is a table of Asian countries' current ratings
compared with pre-crisis levels:
Standard and poors' rating
Countries Long-term Outlook Pre-crisis
foreign currency
China BBB Stable BBB+/Stable
Indonesia CCC+ WatchNeg BBB/Stable
Malaysia BBB Stable A+/Positive
Philippines BB+ Stable BB+/Positive
Singapore AAA Stable AAA/Stable
South Korea BBB Positive AA-/Stable
Taiwan AA+ Stable AA+/Stable
Thailand BBB- Stable A/Stable