Banks may feel SARS pain in China, SE Asia

Banks may feel SARS pain in China, SE Asia

Agence France-Presse, Hong Kong

Standard and Poor's (S and P) said on Thursday the outbreak of a pneumonia-like illness in greater China and Southeast Asia is unlikely to have any immediate impact on its ratings on banks and insurance companies in the region.

However, the short-term financial performance of banks and the business growth of insurance companies operating in the regional economies worst affected by Severe Acute Respiratory Syndrome (SARS) are likely to come under pressure, the global ratings agency said in a statement.

"SARS is likely to pressure the immediate financial performance of banks in the region's worst-affected economies, particularly Hong Kong, by subduing business and increasing the risk of loan defaults," S and P said.

"However, it is unlikely to seriously affect their medium term financial profiles," if the SARS outbreak will not escalate into a pandemic, it said.

S and P said banks' commercial customers face disruptions to business and shifting consumption patterns in the worst-affected economies, as businesses in travel, tourism, hospitality and retail industries are facing reduced sales, which will squeeze cashflows, with negative follow-on consequences for banks' loan performance.

However, in the insurance industry, possible travel and medical insurance claims generated by SARS are likely to be limited, while business interruption risk caused by the illness is not likely to be covered by most existing policies.

So far, some 3,000 cases of SARS had been reported globally, S and P said. Of these, two-thirds had been recorded in Hong Kong and in mainland China, where the infection is thought to have originated.