Asian countries move slowly to reform banks
Asian countries move slowly to reform banks
TOKYO (Reuters): Point a finger at any of the now-humbled Asian economies and you'll find the same problem at the heart of their woes -- the banking system.
While the details differ from country to country, the symptoms are mostly all the same: bad loans collateralized with real estate of diminished value, lax supervision and accounting, a staggering need for capital and more banks than depositors or borrowers need.
Throw in financial bureaucrats and politicians anxious to protect their fiefdoms or deliver to their constituencies and it's no wonder the region's banking system is in chaos.
"The banks are under-regulated. There are no examiners of consequence. Nepotism is rampant and giving rise to corruption," said Dennis Gartman, who pens the Gartman Letter, which surveys macroeconomic and political developments around the world.
"They can't possibly move to deal with these problems as fast the markets want them to."
The financial malaise has grown so bad that as many as 150 Asian banks may be insolvent, Philippe Delhaise, president of Thomson Bankwatch in Hong Kong, said during a recent interview with Reuters Television.
And foreign investors -- who could offer needed management expertise, as well as capital -- are staying away because they distrust Asian bookkeeping.
"That makes life impossible for the regulators because what Asia needs today is a huge recapitalization of its financial systems," Delhaise said.
Steps Toward Recovery
But even as Asia's banks seem on the verge of expiry, some observers say the hardest hit countries are taking steps -- albeit, baby steps -- in the right direction.
Among the developments:
* Once-autocratic Indonesia has suspended the licenses of seven banks -- four controlled by friends and relatives of former President Soeharto -- and placed seven others under the management of a state-run restructuring agency.
* Thailand has closed 56 financial companies and some healthier banks have successfully raised capital from the markets.
* Korea, for the first time ever, closed five banks and ordered stronger banks to absorb their assets.
"Do they have more to do? Of course," said Gartman. "But they should be congratulated for the way they have handled it thus far."
Thailand Lead
Analysts said that Thailand, with the breadth of its action, and South Korea, whose president has surrounded himself with free marketeers and attacked the country's entrenched corporate groups, are leading the hobbling Tigers as they paw their way back to health.
That resolve, they say, could eventually lead foreign investors to the region in search of bargains and markets as curbs against overseas ownership begin to fall and accounting procedures converge with international standards.
That could introduce much-needed capital and bring Asia's banks a degree of sophistication that to date has been lacking.
"This is an evolutionary process," said David Cohen, economist at Standard & Poor's MMS. "To date, it's been big banks absorbing small banks. But if a bigger bank were to get into trouble, we might see some foreign participation."
Beware the Ostrich
Still, some worry that the region's biggest economy, Japan, remains the key.
As a strong dollar forces Japanese banks to boost capital to meet an eight percent capital-asset ratio enforced by the Bank for International Settlements, many are believed to be cutting off credit lines to their Asian counterparts.
This puts a stranglghold on the flow of liquidity Asia's banks desperately need.
"Japanese banks are beginning to retreat from Asia," says Takeshi Nobehara, general manager at the Japan Research Institute and an adviser to some of the country's banks.
"Japanese banks won't roll over their short-term loans to the region, creating risk for local banks."
How much risk? About US$124 billion, or roughly a third of all international lending to Asia, according to the BIS.
But even in Japan, the financial world's biggest ostrich, things appear to have turned for the better.
After years of dithering, the ruling party and the government agreed on Thursday on the creation of a bridge bank system, styled after the U.S. Resolution Trust. The bank will ensure credit continues to flow to worthy borrowers of failed banks and absorb problem loans from failed institutions.
With 77 trillion yen ($548 billion) in problem loans on balance sheets, the new bankers will certainly be busy.