U.S. slowdown to hit Asian banks hardest: S&P's

U.S. slowdown to hit Asian banks hardest: S&P's

SINGAPORE (AFP): Asian banks still struggling to recover from the 1997-98 regional crisis are the most vulnerable in the current U.S.-led economic slowdown, ratings agency Standard and Poor's said Monday.

"The weaker banks in emerging Asia will be disproportionately hit by the slowdown," said Ian Thompson, the New York-based agency's managing director for financial services ratings in the Asia Pacific.

"Indeed, some of these banks haven't really recovered yet from the Asian crisis of 1997 and 1998 and as a consequence, they are going to be particularly vulnerable to any downturns," he told a briefing on the impact of the economic slowdown.

Banks in Indonesia, China and India were considered to be in a higher risk category and were singled out as the most ill- equipped to cope in a global slowdown.

"China's and India's banks are insulated to a certain degree, but broadly speaking, of all emerging Asia's banks, those in the first group will find it hardest to cope with a sharp regional downturn," Thompson said.

The impact on banks in the Philippines, Thailand, South Korea and Malaysia would be less severe, while banks in Taiwan, Singapore and Hong Kong, were best equipped to weather the economic storm, he said.

Standard and Poor's said consolidation and alliances with foreign partners could be the only viable option for banks grouped in the higher risk and second tier categories.

In Thailand, the trigger point for the 1997 meltdown, the new slowdown will place further pressure on the banking sector which has yet to complete much needed reforms, Thompson said.

"Even relatively strong Thai banks, such as Bangkok Bank Public Co. would be affected to a certain degree."

Reported figures showing a non-performing loan ratio of 18 percent were misleading as they excluded restructured loans and foreclosed properties, he said.

In South Korea, Thompson saw the gap between weak and strong banks being further highlighted.

Leading banks like Shinhan Bank and Kookmin Bank have focused more on retail banking segments, ensuring a reliable source of profitability, while corporate-focused banks "continue to have balance sheets blighted by large exposures to the trouble industrial conglomerates," Thompson said.

Standard and Poor's said that for banks in its top tier Asian group -- Singapore, Taiwan and Hong Kong -- the challenge was to find new drivers of growth.

In the case of Hong Kong and Singapore, Asia's financial hubs, margins will come under pressure amid intense competition from foreign players.

Taiwanese banks faced thin interest margins and understated non-performing loans but the high-level of government ownership in the banking sector will provide a cushion against these threats, the ratings agency said.