The Hindu Business Line : `Asian banks better placed to counter crisis'

"There is more governance, improved asset quality and some consolidation in banking systems and these are now better equipped to withstand potential.''

Mumbai , Sept. 5

Standard & Poor's Ratings Services believes a financial crisis similar to the one that hit Asia in 1997 is unlikely to occur, as banking systems in the region are now better placed to weather possible stresses.

According to "Asia 1997 Retrospective" a series of three reports published, key factors that set the scene for the crisis are no longer as prevalent now as they were in 1997.

"Unlike the situation in 1997, Asian companies now have lower foreign debt exposure or hedging policies against foreign exchange risk and sovereigns bolstered their external positions with stronger reserves," said Standard & Poor's credit analyst, Mr Terry Chan.

"Nevertheless, the overall increase in the debt of sovereigns and to a lesser extent, corporates remains a concern," he adds.

System risk factors

The report examines nine system risk factors in 2005, including banking system structures, government debt and international reserves and offers a comparison with the situation in 1996.

The study covers 10 Asian financial systems — China, Hong Kong, Indonesia, India, Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand.

Asia's banking systems have strengthened since 1997 although some have yet to reach their full pre-crisis credit strength, as per the reports.

"There is more governance, improved asset quality and some consolidation in banking systems and these are now better equipped to withstand potential," said S&P analyst Mr Adrian Chee.

"Nevertheless, our stress testing indicates that systems with low interest rates, significant net exports to GDP and high exposure to an Avian flu outbreak are most vulnerable to sharp rise in non performing assets in times of crisis," he added.

The third report discusses the drivers behind the 1997 crisis.