Asian banks need 'up to $64b' in new capital

Asian banks need 'up to $64b' in new capital

SINGAPORE (Reuters): The cost of recapitalizing Asia's
beleagured banks, excluding those in Japan, could be as high as
US$64 billion said global securities firm Merrill Lynch in a
report received by Reuters yesterday.

"Crudely, we estimate that the cost of recapitalizing Asia ex-
Japan's commercial banks will be US$47 billion to US$64 billion,"
Merrill said in its Asia Pacific strategy report dated July 22.
Including China, the potential costs leaps to US$155-$204
billion, the report said.

Painting a grim picture for the sector, Merrill said it
expected non-performing loans (NPLs) should peak at about 24
percent, with banks eventually having to write off as much as
half of all their bad debts.

"In several cases (China, Indonesia, South Korea and Thailand)
the required additional provision either would eliminate or
almost eliminate existing shareholders' funds," the report said.

Such a scenario, coupled to the fact that fresh capital had
not poured into the sector, was likely to temper the willingness
of banks most at risk to make adequate provisions in future.

"We are concerned that banks in Asia, as a consequence of
there being no clear indication of capital availability and in
order to avoid panicking depositors... will avoid making the
necessary provisions, thereby prolonging the deterioration of
asset quality assumptions," Merrill said.

This factor would have a negative impact on bank stocks.

"Historic experience elsewhere in the world suggests it is
difficult for bank shares to outperform whilst asset quality
assumptions deteriorate," it said.

While many analysts had made comparisons between Asia's crisis
and Mexico's banking collapse in 1994, the report said there were
significant differences between the two.

Mexican banks had generated a sufficient return on equity,
well ahead of loan growth, in the pre-crisis period, and the
country's position as a world class cement producer had enhanced
its ability to export its way out of the crisis, Merrill said.

"Finally, the benign support of the USA was much more
significant than Asia is likely to enjoy either from the USA or
its own giant, Japan," it said.