Asian banks still face hurdles after financial crisis: Fitch

Asian banks still face hurdles after financial crisis: Fitch

Deborah Haynes, Agence France-Presse, Tokyo

Banks are recovering from the 1997-1998 Asian financial crisis
but still face hurdles, with massive bad loans in China, reform
delays in Taiwan and low quality assets hurting Philippine
lenders, an official from credit rating agency Fitch said
Wednesday.

Korean and Singaporean banks have made the strongest rebound,
while those in Taiwan, Thailand and the Philippines still have a
long way to go, said David Marshall, Fitch Ratings' Asia-Pacific
managing director.

Despite sluggish economic activity, lenders in Hong Kong are
making progress and their Malaysian counterparts are also fairly
sound, though there should be further consolidation among weaker
banks, he told a forum in Tokyo.

"(Overall) we are more positive than negative but only mildly
so. We have had a lot of upgrades over the past one or two years
so we think that the upgrades are going to slow this year and
that the banks are going to have to work harder to achieve
(them)," Marshall said.

"They are going to have to demonstrate to us that their
financial strength has really improved, that they are
consolidating their risks and particularly in the case of Korea
that consumer credit quality is going to be manageable."

China, where the ratio of non-performing loans (NPLs) to
equity at banks is 100-500 percent, had major problems with the
financial system effectively insolvent, held together by the
government, Marshall said.

"People are confident in the banks because of the government
support... the government recognizes the banks have a problem but
the official line is that the banks will earn their way out of
the problem."

There was talk of Beijing compiling a US$72 billion banking
rescue package, "but that is no way near enough," noted Marshall.

"The longer the problems go on the larger they become," he
warned.

Taiwanese banks -- also buried in bad loans -- would struggle
to avoid a "Japan-style slow burn crisis" as the economy hollows
out.

Last year, Taiwan's finance ministry unveiled a plan to revive
the sector, aiming to reduce the number of banks to about 15 from
50 by June 2005 and cut the ratio of NPLs to five percent,
commented Marshall.

"It is all very ambitious and very good," he said.

"If they achieve their ambitions then there will be a dramatic
improvement in the problem. But there has been a delay in the
passage of the legislation," he noted, adding that failure to
tackle the issue would only make it worse.

In the Philippines, banks have accumulated massive real estate
assets on their books from bad borrowers, which they are unable
to sell.

The lenders did not appear to have revalued the assets at
market price, inflating their worth, noted Marshall.

"The Philippines is on a deteriorating trend due to poor asset
quality which is getting worse."

In the case of Thailand and Indonesia, banks were improving
their financial performance, but only from a very low level.

The Thai government had been slow to force banks to write-off
bad loans, which meant their recovery lagged behind most of the
region but was headed in the right direction.

Most Indonesian lenders were nationalized during the Asia
crisis and their books, although clean, contain large bond
holdings.

"They have a challenge to build up their balance sheets,"
advised the Fitch director.

Seoul had done the best job of reviving its financial sector
through implementing a tough reform plan. As a result, Korean
lenders enjoyed a sharp rise in profits in 2000 and 2001, noted
Marshall.

But he warned the surging popularity for credit cards could
hurt earnings at banks if consumers fail to pay their bills.

"There is a very strong growth in loans and a very rapid
increase in credit card receivables... banks are too keen to
issue credit cards. The credit quality is an issue for Korean
banks and credit card companies," he said.