Standard and Poor's sees signs of strain in financial systems

Standard and Poor's sees signs of strain in financial systems

HONG KONG (AFP): Global credit rating agency Standard and Poor's warned Tuesday of weaknesses in the financial systems of 16 economies, with up to 70 percent of China's assets at risk.

The New York-based credit assessor included seven Asian economies -- China, Hong Kong, Japan, Malaysia, the Philippines, Singapore and Taiwan -- among the 16 which revealed signs of deteriorating credit quality.

The others were Chile, the Czech Republic, Egypt, Greece, Israel, Lebanon, Panama, the Slovak Republic and the United States.

In a report received here, Standard and Poor's said excessive credit growth, weakening external funding profiles and deflating, or soon to be deflating, asset prices were a concern in all 16 economies.

In Japan, Standard and Poor's estimated problem assets could amount to about 20 percent of the total, higher than its previous estimate of 15 percent.

The upward revision reflects the depth of the country's recession, the report said, adding the costs of recapitalizing the teetering financial system could amount to 10 to 15 percent of Gross Domestic Product.

The agency said increased competition in Japan's financial sector as a result of its "Big Bang" financial reforms will put further pressure on the Japanese banking system.

Hong Kong's banks are well managed and the territory has a "solid regulatory environment," but S and P said the system could still come under severe pressure if the local currency's link to the U.S. dollar is broken.

The report said Hong Kong's credit growth has been high and it is now faced with increasing exposure to declining property and stock markets which have slumped drastically in the past year.

Standard and Poor's last month downgraded Hong Kong's sovereign credit rating due to the deepening recession and in part to the government's decision to intervene heavily in the markets to stamp out speculation against the local dollar.

The agency also revised upwards its forecasts for gross problematic assets in South Korea, Thailand, Indonesia and Malaysia due to the prolonged nature of the financial crisis.

It said the Malaysian government's recent decision to impose strict capital controls on the ringgit and reluctance to open the financial sector to foreign controlling stakes will greatly delay a recovery.

Standard and Poor's predicted problem loans could hit 40 percent as falling asset prices and the slowing economy left the highly leveraged Malaysian corporate sector exposed.