S&P's calls for greater credit quality in Asia
S&P's calls for greater credit quality in Asia
SINGAPORE (AFP): Global ratings agency Standard and Poor's,
warning Asia's recovery from crisis is fragile, called Tuesday
for quick improvement in credit quality as part of corporate
reforms to woo back foreign investors.
Officials from the agency said investors would not return to
the region, from where they bailed out during the financial
crisis which erupted in mid-1997, until they saw solid reforms,
including efficient credit controls.
"There should be a real credit culture seen introduced in the
region where people use objective analysis to make their credit
and other investment allocations rather than just relying on
reputations and relationships," said Robert Richards, Standard
and Poor's managing director for Asia-Pacific corporate ratings.
He told reporters at a briefing on corporate ratings that the
sovereign ratings and credit quality in Asian economies had
"stabilized overall" but their recovery from turmoil was in "a
fragile state."
"In order to be certain that the recovery is sustainable and
prolonged, it is going to be important that countries continue to
implement reforms in terms of better financial disclosure,
accounting, better corporate governance in general and legal
framework," Richards said.
He said the maintenance of the momentum on restructuring and
reform was "very important" to sovereign, banking and corporate
sectors as well as to regain confidence of investors and to win
better ratings.
"At this point, I think the investors are going to be more
skeptical and going to wait to see real improvement before the
money flows in a stable and long-term manner into the region," he
said.
Richards suggested that Asian economies emulate the Western
practice of rating bank loans as part of corporate reforms.
"The use of objective credit analysis is the key in getting
away from the relationship- and reputation-based lending of the
past and one of the important things for a prolonged recovery,"
he said.
Surinder Kathpalia, director and general manager of Standard
and Poor's Southeast Asia ratings, said it had become a trend in
the West to have large bank loans which were syndicated to be
rated.
In Asia, less than half to one percent of such loans undergo
the rating process, which helps set a benchmark for pricing,
facilitate syndication and brought in a wider group of investors,
he said.
"For the banks, they can make the whole process of credit more
efficient -- it (the rating of loans) is independent research and
facilitates the trading of bank loans in the secondary market,"
Kathpalia said.
He explained that asset managers themselves were now taking up
loans on the invitation of banks.
"These asset managers are used to seeing weighting for fixed
income instruments and they do not have the same kind of
facilities or resources to do research on bank loan borrowers.
"So increasingly, they are asking for loans to be rated,"
Kathpalia said.
He added that the Bank of International Settlements (BIS), the
central banks' central bank, was also proposing guidelines using
ratings for benchmarking risk and setting aside appropriate
capital.
Kathpalia also said that with economic recovery in Asia,
Standard and Poor's had revised this year the outlook of its
sovereign ratings for Malaysia, Thailand and the Philippines.
Malaysia has "BBB-" with a stable outlook from negative, the
Philippines "BB+" with stable outlook from negative and Thailand
"BBB-" with a stable outlook from negative.
Indonesia's rating outlook of "CCC+" stable was changed to
credit watch negative two weeks ago while's China "BBB+" with
negative outlook was changed two months ago to "BBB" with stable
outlook.
Hong Kong remains with a rating of "A" with negative outlook
and South Korea "BBB-" with a positive outlook.
"I would expect the ratings to stay where they are at this
moment of time," Kathpalia said.