Outlook for Asia's banking sector should remain stable

Outlook for Asia's banking sector should remain stable

HONG KONG (Dow Jones): Rating agency Fitch said its outlook on Asia's banking sector will likely remain stable in the medium term, as it doesn't expect any major credit rating upgrade in the region in the near term.

Speaking at a seminar on Asia's banking sector, Fitch analysts said Friday that banking sectors in South Korea, Thailand, Indonesia, Malaysia and Taiwan have to overcome significant challenges before Fitch would consider improving their outlooks.

The analysts recognized that some of the countries have made significant efforts to restructure their banking sectors, but continued political, economic and social uncertainties still weigh on them.

In Thailand, for instance, Fitch needs "to see clear signs" of improved assets and capital before the agency upgrades Thai banks, said David Marshall, managing director for Asian financial institutions.

In the case of Indonesia, "economic growth will have to be sustainable for a while (before Fitch can) consider any Indonesian bank upgrade," said analyst Peter Tebbutt.

Turning to Malaysia, Tebbutt noted that Malaysian banks' credit ratings are "a bit of a mixed bag" because of merger activities currently going on.

Mergers will affect nonperforming loans on the banks' balance sheets but Tebbutt warned not to expect "any wild changes."

Taiwan also has to overcome a number of challenges, such as establishing successful asset management corporations, or AMCs, to dispose of the banks' nonperforming loans.

Taiwan has started setting up AMCs, including joint ventures with foreign banks like Goldman Sachs and Morgan Stanley Dean Witter, but whether those AMCs will be a success or not "is still doubtful," said Fitch Taiwan representative Roxanne Liu.

Another challenge Liu identified is Taiwan's need for an improved and unified bank supervision body. The unification of the three current supervising bodies, which has been planned for years, has so far shown no progress.