Setbacks cloud Asian bank restructuring

Setbacks cloud Asian bank restructuring

PARIS (AFP): Progress has been made in restoring health to the crisis-ravaged banking systems of Indonesia, Malaysia and Thailand but setbacks are possible because of huge corporate debt, the OECD said Thursday.

The three countries -- the three non-OECD economies hardest hit by the 1997 Asian financial crisis -- are using bank asset management companies to buy non-performing loans (NPLs) from banks.

Restructuring is being accompanied by efforts to improve prudential standards and bolster governance.

"The banking landscape is undergoing significant changes with many banks either being merged, closed or having greater foreign participation," the Organization of Economic Cooperation and Development said in its economic outlook.

"However, the restructuring process is still incomplete and subject to risks of a setback given the more limited progress that has been made in resolving non-financial corporate debt problems," the grouping of developed countries said.

Other challenges include disposing of problem loans, reprivatizing banks acquired by governments after the crisis and dealing with the costs of bank restructuring.

Malaysia has made the most progress, completing the acquisition of NPLs last year, and bank capital adequacy ratios have been lifted above international minimums.

Substantial progress has also been made in reducing the number of core banking groups.

"Significant but less progress has been made in corporate debt restructuring, which has been hindered by government protection of some strategic enterprises and restriction on foreign ownership in certain areas," the OECD said.

Thailand's restructuring of private banks has relied more heavily on the efforts of the banks themselves. Banks have set up their own asset management companies and raised capital in the market.

"But new non-performing loans continue to emerge, remaining non-performing loans are proving to be more difficult to restructure and banks appear reluctant to write down bad loans."

Progress in corporate restructuring has also been limited and some companies appear to have withheld loan repayments, despite an ability to pay.

The Indonesian Bank Restructuring Agency had taken over 82.6 percent of banking sector NPLs by the end of 2000 but less than three percent of the assets acquired had been disposed of by early this year.

Capital adequacy ratios were still less than half the international minimum by October last year and restructuring was being hampered by the weak economy and massive corporate debts.

GDP Growth

In its semi annual report, the OECD slashed its forecasts for growth in the United States this year to 1.7 percent from 3.5 percent and in Japan to 1.0 percent from 2.3 percent, but held the euro-zone figure almost steady at 2.6 percent.

"The world economy has been expanding at a much slower pace in early 2001 than expected just six months ago, leading to a marked downward adjustment of near-term growth," the OECD said, forecasting recovery in the second half of this year.

Recovery in the United States would probably emerge in the second half, it said.

The OECD said that the economy in the U.S. would grow by 3.1 percent next year, in Japan by 1.1 percent and in the euro-zone by 2.7 percent, commenting that the ECB would have to cut its interest rates sharply if activity slowed.

The U.S. Federal Reserve might be justified in cutting its rates modestly again, the OECD said. T he Organization for Economic Cooperation and Development (OECD), grouping 30 leading industrialized countries, had said on April 10 that the euro-zone would show growth of 2.7 percent in 2001.

The previous forecasts from the US and Japan dated from December, when the OECD had said the euro-zone would grow by 3.1 percent, a figure adjusted in a special euro-zone report in April.

The OECD also said in its semi-annual report on Thursday that the entire OECD zone was now expected to grow by 2.0 percent this year instead of by 3.3 percent, estimated in December.