More to Consider. Bank crisis will be at the heart of the problems in Asia. When liquidity dries up... listen, you can hear the sound of the bankers taking to drink. That is the sound of Scotch on the rocks Mohan.
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Banks brace for tough times as turmoil bites into bottom lines
AGENCE FRANCE-PRESSE in Singapore
Asian banks and financial institutions which have so far survived the regional turmoil are bracing themselves for worse to come as bad loans start ravaging balance sheets.
With Thailand, Indonesia and South Korea in recession, corporate borrowers collapsing, consumer confidence at rock bottom and the property market choked by a glut, banks are expecting more defaults, prompting exceptional provisions for bad loans which are eating into profit margins.
"You ain't seen nothing yet," said Song Seng Wun, regional economist with GK Goh securities in Singapore after the island's regionally-exposed banks reported sharp drops in profits, with one small bank suffering a rare loss.
"If you call this poor, you should call again in six months' time," he warned.
Global credit assessor Moody's Investors Service downgraded the outlook of Singapore's leading banks from "stable" to "negative" last week to reflect "the possible deterioration in regional conditions".
In Thailand four commercial banks have been taken over by the central bank since the beginning of the year after failing to find foreign partners to help them in a desperately-needed recapitalisation ordered by the authorities.
In December, 56 debt-ridden finance firms were closed down as part of efforts to overhaul a financial sector saddled with an estimated US$35 billion in bad debts run-up mainly in the property industry.
The authorities ran up $27 billion in failed rescue bids in the financial sector.
In Indonesia the government closed down 16 banks in November.
The central Bank Indonesia has been injecting money into Indonesian private banks to help them pay crippling foreign debt, foreign bankers said. More than 200 banks remain in operation, many ripe for mergers.
In Malaysia, no banks have collapsed or been shut down but the central bank announced that the sixth-largest bank, Sime Bank, suffered a first-half loss of US$436 million and required at least M$1.2 billion (about HK$2.3 billion) in fresh capital.
The central Bank Negara Malaysia also said Bank Bumiputra, the second-largest bank, needed about M$750 million in new capital while two finance companies required a combined M$33 million ringgit.
In South Korea, local banks were saddled with nearly US$15 billion in non-performing loans by the end of 1997 after a spate of corporate failures.
In February they signed loan restructuring agreements with major conglomerates.
Last month, the finance ministry suspended operations at two ailing merchant banks. It earlier shut down 10 merchant banks after the sector was blamed for a liquidity crunch which toppled many corporations in January.
Foreign banks are worried over the money they poured into Asian banks and corporate borrowers during the good times.
According to Moody's, Japan's banks face a larger risk than those of other major lending countries, with an exposure of $182 billion dollars to Asia, up to half of them given to Japanese businesses overseas.
European lenders are also facing major risks, led by German banks, which have an exposure of $62 billion dollars to Asia, while US lenders are relatively better protected by strong reserves, Moody's said.
... on our little creaking bicycle we move towards Korea. The land of the chaebol that employ 40% of everyone in Korea who works.
Rosy numbers mask Seoul's predicament
B.J. LEE
On the surface, South Korea is recovering from a foreign currency crisis that led the world's 11th largest economy to the brink of a national default. Its trade surplus hit a record high last month and foreign investors are bringing billions of dollars to buy Korean stocks and bonds. Foreign creditor banks are willingly converting Korean banks' short-term debts into long-term ones to ease their dollar shortages.
Yet the Korean financial markets are not showing signs of improvement.
The won suffered last week, losing more than 2 per cent against the US dollar on Thursday and Friday, while the stock market's composite index plunged 5.9 per cent for the week. Thursday saw the heaviest losses as massive sales by foreign investors wiped more than 6 per cent off the index.
What are the reasons behind the contradictory moves of the markets?
When it comes to Korea's foreign currency situation, the worst is not over yet, analysts believe. Korean firms still owe huge amounts of short-term debts and that makes them hoard dollars. In addition, because of a lack of confidence in the economy, foreigners are not adopting a serious investment approach.
"The fundamental dollar shortage problem has not disappeared yet," Lee Chang-soon, a senior researcher at LG Economic Research Institute, said. "The problem can haunt the Korean economy for months, or even years."
At least in the short run, Korean banks' foreign debt problems are easing. During the past week, they received favourable responses from foreign creditor banks on converting US$24 billion of short-term obligations to long-term debts.
.......please note here that there is no mention of the won which has gone to money heaven... $15-$25 billion worth of small naked won with little smiles on each one of them winking into eternity... at this point that's a lot of dumplings kids....
"In January, representatives of the foreign creditors agreed in principle to reschedule the debts but individual agreements have to be struck between individual Korean and foreign banks in the next few weeks. The Finance and Economy Ministry said at least $20 billion of short-term debts would be rescheduled.
But that is only a fraction of Korea's foreign debts, estimated at $180 billion. Korean corporations hold nearly 40 per cent of the debts and these cannot be rolled over or rescheduled that easily because their payments are not guaranteed by the Korean Government, unlike the debts held by the banks.
This leads to the hoarding of dollars to repay debts.
The Bank of Korea said foreign currency deposits rose 10 per cent during the past two months mainly because companies were keeping the proceeds from their exports in banks.
Exports have grown recently thanks to the weaker won that makes Korean products cheaper overseas. That is mainly responsible for a record $3 billion trade surplus last month and four consecutive months of current account surpluses.
However, the surpluses are also a result of poor import performances, which is a bad sign because large amounts of raw materials and machinery are needed to produce goods for export.
"Poor imports will soon lead to poor exports, given our economic structure," Han Sang-choon, a senior researcher at Daewoo Economic Research Institute, said. "Without enough exports, Korea will always have tough times repaying its foreign debts."
Foreign investors have already noticed the problem. So far this year, more than $3 billion of fresh money has been injected by foreign stock and bond buyers but the trend has suddenly reversed during the past few days as they questioned the probability of a quick recovery in the Korean economy.
"Without the backing of strong economic fundamentals, foreign investors will not keep their money in Korea for a long time," Mr Han said. |
