Barclays releases banking report

Barclays releases banking report

HONG KONG (Dow Jones): Banks in Hong Kong, the Philippines and
Malaysia are in the best shape in the region, and those in
Indonesia and South Korea in the worst, Barclays Capital said
yesterday.

In its latest regional analysis, Barclays said "many Asian
banks are losing cash every day they stay open," due to the
ongoing regional financial markets crisis.

In the report, which examines which banking systems around the
region are most at risk of widespread disruption or default,
Barclays noted that some Asian banks are still doing well,
despite the markets crisis. Risks associated with these banking
systems aren't as high as in regional hot spots.

In South Korea, Kookmin Bank, Shinhan Bank and the Housing and
Commercial Bank all generated strong cash flows and had
increasing yields while their non-performing loans were kept at
relatively low levels.

But Barclays said risks are increasing for the banks, which
were forced to absorb weaker banks by the government. Though the
government said it will take care of the weaker banks' problems,
"the acquiring banks are unlikely to be taking these banks on
commercial terms."

Barclays concluded that South Korea's government, "rather than
isolating the problem...has spread it, undermining stronger
banks" and leaving it harder to attract foreign capital,
increasing uncertainty in the country's economy and banking
system and leading to increased risk.

Barclays Capital minced no words about the state of the
Indonesian banking system, saying systemic risks remain extremely
high.

"We consider Indonesia to be the worst of any banking sector
in Asia," Barclays said. "With a few exceptions, most banks are
likely to default if they have not already done so. Systemic risk
will not only affect the banks, but every issuer out of the
country."

Even at the height of the Asian markets crisis and despite
growing uncertainties, Hong Kong's banking sector "at worst,
should make small cash profits," Barclays said.

Barclays said Hong Kong's "reliable and efficient legal
system" enables quick liquidation of security and that the
recovery rate of loans should be better overall, because
underwriting standards are relatively high compared to the rest
of Asia and write-offs should be lower than anywhere else.

"Also, we believe Hong Kong banks will find it easier to pass
on higher spreads to customers given the cartel-like nature of
the market," Barclays said, rating systemic risk as low.

While Philippine banks are about to see a sharp rise in non-
performing loans, the sector "is far more profitable than most
other banking sectors in Asia," Barclays said. Interest margins
are wide and improving, helping better banks with strong cash
flows in the face of deteriorating asset quality.

"Furthermore, in a perverse way, the notorious inefficiency of
Philippine banks is a positive," Barclays said.

Shrinking profitability will encourage a lowering of overhead
costs, thus offsetting income lost from non-performing assets.
Still, some banks in the region are at risk, and if they fail,
confidence will be eroded. Systemic risk there is low to
moderate.