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.