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