S&P revises ratings outlook on KL, RI, Thailand banks
S&P revises ratings outlook on KL, RI, Thailand banks
Dow Jones, Kuala Lumpur
International rating agency Standard & Poor's Corp. said Tuesday that it's revised the ratings outlook on the banking sectors of three Asia Pacific countries - Malaysia, Thailand and Indonesia.
Malaysia's banking sector has been assigned a stable ratings outlook from a positive outlook a year ago.
Both Indonesia and Thailand have been given a stable banking sector ratings outlook from negative a year earlier.
S&P made public its banking system outlook report for 2003 in Kuala Lumpur Tuesday.
On Malaysia, S&P officials noted that progress in merging banking institutions and slashing nonperforming loans in the sector was already reflected in the previous positive rating, and the agency now expects a more moderate improvement.
"The industry's progress was reflected in the earlier rating," Ian Thompson, S&P's managing director of Financial Services Ratings, said at the press conference.
"Going forward we see a gradual improvement," Adrian Chee, Associate Director of Financial Services Ratings at S&P, said.
However, he didn't rule out the possibility of some leading individual Malaysian banks being reviewed.
S&P's Asian Banking Outlook 2003 report notes that "there remains some upside potential from a ratings perspective for the leading banks."
Officials hailed the progress made by Malaysia's Corporate Debt Restructuring Agency and other government agencies in restructuring loans and reducing the amount of nonperforming debt. The agency expects the recovery rate for NPLs to remain unchanged this year at 45 percent.
"Malaysia would be one of the more successful systems (for restructuring debt and lowering the NPL ratio), others weren't as successful," Thompson added.
The outlook for Indonesia's banking sector was raised to stable from negative.
"In Indonesia we see a stabilizing situation, but it's still at a difficult stage," Terry Chan, S&P's Director of Financial Services Ratings, said.
"A slight decline in the system's NPL ratio in 2003 is likely as total loans grow," the report notes. NPLs will make up around 45 percent of total loans in the banking system by mid 2003, the agency estimates, just below an end-2002 estimate of 46 percent. The agency projects the recovery rate of NPLs to be just 15 percent in Indonesia next year.
In addition, Indonesia is perceived as holding "very high industry risk," given its economic frailty. The report also notes a lack of diversity in banks' asset bases and earnings, and major proportions of assets and interest income coming from government bonds.
For Thailand, the banking sector outlook was also raised to stable from negative, and the agency estimates the recovery rate of NPLS to be around 30 percent this year.
"In Thailand we are finally beginning to see asset quality stabilization," Chan said. At last, there are signs of improving profitability, though at low levels, he added.
Officials noted there is some danger of restructured loans in Thailand reverting back to NPLs unless regulators get tough about repayment.
Nevertheless, the agency projects Thai NPLs to fall to around 28 percent of total loans from an estimated 30 percent at the end of 2002.
In making outlook projections, S&P looks as economic and industry risk, NPLs and recoverability, as well as other factors.