Asian banks recover from crisis: S&P

Asian banks recover from crisis: S&P

TOKYO (Reuters): Asian banks are recovering after the region's 1997 currency crisis but will take at least another three to five years to regain their full health, Standard and Poor's (S&P) said on Friday.

Executives from the ratings agency told a conference in Tokyo that in some countries the healing could take much longer.

Indonesian banks, for example, will need another decade to recover fully and the clean-up could cost another $70 billion.

"But overall the situation has stabilized throughout Southeast Asia. And yes, the banks are back on track. But for many it is along a winding track and they remain a long way from the finishing line," said Ken McLay, a director at S&P.

As Asia's economic recovery has progressed, S&P raised the credit rating outlook on many regional banks to stable from negative, implying that further downgradings are unlikely.

But many banks remain below investment grade and Ernest Napier, managing director of financial services ratings, said they were unlikely to achieve that rank for quite a while until S&P was sure that the mistakes of the crisis would not be repeated.

This means banks must develop robust systems for assessing credit quality and be sure that corporate reforms have improved the underlying creditworthiness of their borrowers.

Taking the example of South Korea, Napier said this could take two to three years.

"You can't really create a credit culture in 12-18 months," he said. "So they're getting there, but it won't be overnight."

Terry Chan, who covers North Asian banks for S&P, said the extra 50 trillion won ($44.88 billion) earmarked by the Seoul government for bank recapitalization, on top of 90 trillion it had already provided, should prove to be enough.

But he expressed concern over high debt levels and the slow pace of restructuring at Korean chaebol, or family-run conglomerates.

"There's been far more restructuring on the bank side than on the corporate side," he said.

The S&P analysts also commented on other countries:

o The aggressive diversification and expansion strategies of Singapore's banks will weaken their capital position and increase their risk profile. Consequently, they need to exercise caution.

o Thailand's banking system will probably need a further $25 billion to $35 billion in fresh capital given that Development Bank of Singapore [DBSM.SI] recently sold the non-performing loans of its Thai subsidiary for just under 29 percent of face value.

"Capital of this magnitude can only be successfully obtained if the owners of Thai banks are prepared to dilute their ownership. With few exceptions they have been very reluctant to do this," McLay said.

o In the case of Indonesia, he said it was not clear how the banking system, which needs an estimated extra $90 billion, can be recapitalized without attracting foreign investors -- a politically controversial option.

o The recapitalization of the Malaysian banking sector is largely complete.

o The Philippines has too many banks and their asset quality is weak. But the sector is consolidating, which will be positive in the longer term, and the sector's needs for fresh capital are modest at around $2 billion.

o Taiwan also has too many banks and some consolidation would be appropriate, preferably by opening up to foreign competition. But the sector is fundamentally sound and has satisfactory capital levels.

o China's banks are grossly underprovisioned and need a staggering $400 billion in fresh capital. This will keep them weak and reliant on government support.