SE Asian recovery depends on banking

SE Asian recovery depends on banking

KUALA LUMPUR (AFP): Southeast Asia's continuing recovery depends on banking and corporate reforms and there are still concerns about the ability of policymakers to implement extensive changes, Standard and Poors said Wednesday.

The region's financial markets also remain vulnerable to volatile capital movements, the United States ratings agency said.

Ratings and outlooks on Southeast Asian sovereign credits have generally improved and should remain on a stronger footing this year, the agency said.

"The rating outlooks on Malaysia, Thailand and the Philippines are now stable, largely reflecting improved balance of payment flows, the progress to date in restructuring financial systems and structural economic reforms," said Takahira Ogawa, regional director of sovereign ratings for the agency.

Like many of its neighbors key factors for Malaysia's sovereign rating this year would be further progress in restructuring in the banking and corporate sectors.

Ogawa said Indonesia's rating of CreditWatch Negative reflected concern about political and economic difficulties as well as the possibility of debt restructuring through the Paris Club.

Ernest Napier, managing director for Asian financial institution ratings, told a press briefing the banking system in Malaysia was now "further along the road to recovery" than in many other regional countries.

But he said it would still take two to three years at least before Malaysian financial institutions established a firm footing.

Napier hailed the move by Malaysia's central bank to push bank mergers but said this was not a panacea. Banks must still deal with asset quality problems and a scarcity of capital over the next two years.

Rob Richards, managing director for Asian corporate ratings, said the economic upturn was good news but there was no cause for complacency.

It was "imperative" to improve corporate governance and adopt a "credit culture" -- in which decisions were based on facts rather than "relying heavily on relationships and reputations, as many have done in the past."