Honeymoon over for Asian banks as crisis bites

Honeymoon over for Asian banks as crisis bites

HONG KONG (AFP): The regional market crisis and falling property prices spell the end of the honeymoon for Asian banks, which have been riding high on a decade of stunning economic growth, analysts said.

Banks across the region are feeling the weight of tens of billions of dollars in non-performing loans as growth slows, and consequent credit ratings downgrades are sounding alarm bells around the world.

Robert Zielinski, regional banking analyst with Jardine Fleming Securities in Singapore, said he expected non-performing loans in southeast Asia to "increase dramatically" to 15 percent of total loans outstanding.

"If the banks do not make large provisions for non-performing loans before 1997 ends, if they pretend there is no problem, then you can say goodbye to southeast Asia for the next five years," Zielinski warned.

The latest shock to hit the region's banking sector was Indonesia's November 1 decision to close 16 banks considered insolvent.

The World Bank has estimated that Indonesia's non-performing loans accounted for nine percent of the 331 trillion rupiah (US$100 billion) in outstanding credit in 1996.

Bank exposure to the property sector is estimated at 25 percent of outstanding loans in the country, which is now trying to clean up its finance sector under the tutelage of the International Monetary Fund.

Property accounts for more than 60 percent of some institutions' total loans in Hong Kong and prices are now steadily falling, they add.

The figure of two percent of non-performing loans among the 635 billion Hong Kong dollars (US$81.4 billion) lent in 1996 can be expected to increase in the next year.

"Certainly you are going to feel a downturn -- its already taking place, particularly at the high end of the market. Banks are going to take some hits, " Thomson BankWatch Asia General Manager Sean Fitzgerald said,

But Fitzgerald noted that banks here were "among the best capitalized in the world," and "long-term, I think the banks are going to do just fine."

In Malaysia, analysts say, loans are equivalent to 150 percent of GDP and non-performing loans already accounted for 3.6 percent of total lending by mid-1997.

TA Securities Bhd. senior economist Anthony Dass predicted smaller Malaysian banks would be forced to merge as the level of non-performing loans rise.

In beleaguered Thailand, non-performing loans (NPL) accounted for eight percent of the more than 4.2 trillion baht ($108 billion) in credit extended at mid-1997.

"I forecast the peak of NPLs will be about 20 percent sometime next year," a Phatra Thanakit banking analyst said.

The 34-percent depreciation of the baht since it was floated in July, a liquidity crunch and high interest rates have combined with a series of ratings downgrades -- increasing the cost of funds -- to smash earnings.

"Combined net profits of the nine (largest) banks under coverage are forecast to drop by 36 percent year-on-year in 1997, by 35 percent in 1998," Deutsche Morgan Grenfell's latest survey said.

In South Korea, at the end of 1996, banks were saddled with 2.4 trillion won ($2.44 billion) of non-performing loans, equivalent to 0.8 percent of total credit of 289 trillion won.

But the ratio doubled to 1.6 percent of total credit in June this year, with non-performing loans totaling some five trillion won. Since then it is estimated to have gone even higher.

"South Korean banks and firms have largely failed to restructure themselves in preparation for competition and open markets. Major firms had a wrong perception that they are too big to fail," said Choi Bum-Soo, a senior analyst at the state financial reform committee.