Asian economic crisis neuters Y2k threat

By Brian Truscott

SINGAPORE (Dow Jones): Two years of economic turmoil coupled with widespread insolvency, vanishing credit lines and muted cross-border trade, have neutered the Y2K, or millennium bug, threat to doing business in Asia, say regional bank executives.

Bad loans, the lack of government counter-guarantees or the absence of a strong U.S. or European parent long ago forced foreign banks to dramatically curtail business with domestic banks and corporates in the countries hardest hit by the Asian economic crisis, they say.

This has greatly simplified a bank's task of gauging the risks of doing business with a counter party that may or may not have ensured its computer systems would function in the new year.

Kee Chin Fah, regional head of operations and finance at Skandinaviska Enskilda Banken AB in Singapore, said her bank's loan portfolio has already been divided into Y2K risk-related categories.

"But the irony is that many of the medium-and high-risk indigenous companies in, say, Indonesia or Thailand had already drawn down credit lines before the crisis, can no longer make interest or principal payments, or even carry out business," she said.

In other words, many Asian banks and corporates have been sidelined by the currency crisis, precipitated by the flotation of the Thai baht in mid-1997, making the Y2K question largely a moot one.

"We couldn't care less if (Thailand-based) Siam City Cement is Y2K compliant or not. The company is basically dead; there will be no transactions or payment concerns if the company's computers crash in January," said one UK bank executive, referring to the Thai company's US$540 million debt to more than 60 financial institutions.

There is still the expectation, of course, that some portion of Asian business will be disrupted as non-Y2K compliant software misreads the date Jan. 1, 2000, triggering non-date related processes such as delete entry or stop computation.

But bankers like to use the old hub-and-spoke argument to explain why Asia's potential Y2K problems will be kept in check.

Colm McCarthy, Bank of America's regional head for South Asia, said the bulk of banks' Y2K resources have been earmarked for Hong Kong and Singapore, because that's where most of the payments and business transactions are carried out.

"Our bank carries out business all across Asia, but if a counter party in Indonesia or Thailand isn't Y2K-ready and crashes on Jan. 1, it is relatively easy for us to cut off or isolate that one bad spoke from the rest of the business," he said.

Authorities in Hong Kong and Singapore -- the two major financial hubs in Asia -- have gone to great lengths to ensure their financial sectors -- which were relatively unscathed by the economic crisis -- will be Y2K-ready.

David Carse, deputy chief executive of the Hong Kong Monetary Authority, said it has been essential to demonstrate to other global financial centers that Hong Kong's financial community is on top of the Year 2000 problem.

The Monetary Authority of Singapore said in mid-June that it had successfully completed its part in a global payments systems test, a New York Clearing House exercise that involved 530 banks in 20 countries. The announcement followed an "all-green rating" for Singapore by Y2K watchdog, the Global 2000 Coordinating Group.