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23 June 2010

Moody’s says Asian banks to endure Eurostorm

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Banks in the Philippines and in other Southeast Asian countries remain stable in the likely to weather the Europe’s ongoing fiscal turmoil, as reported by the Manila Times. The ratings firm further said Europe’s debt problems are expected to have limited second order effects on Asia’s banks, reducing, but not reversing export growth and total economic output.

“Of greater concern are signs that Europe’s problems may renew the credit crunch. Whilst the vast majority of Asian banks are funded by domestic deposit, banks in Australia, New Zealand and Korea rely on the cross-border debt markets to fund a portion of their loans,” Tom Byrne, senior vice president at Moody’s, said.

It also noted that Southeast Asian banks are well positioned to cope with the Basel 3 capital and liquidity requirements.

“With the exception of Vietnam and Cambodia, our Southeast Asian banking system outlooks are stable. Non-performing loans have peaked at much lower levels than expected. Bank revenues are growing and should continue to do so as long as China’s economic growth does not drop abruptly. Thanks to [Southeast Asian banks’] strong capital levels, traditional banking franchises and customer deposit funded loan portfolios,” he said.

Earlier, the Bangko Sentral ng Pilipinas (BSP) said the solvency of local lenders improved last year, with their combined capital adequacy ratios at 14.85 percent on solo basis and 15.78 on consolidated basis.

These are above the BSP’s minimum of 10 percent as well as the Basel Accord’s standard of 8 percent.

Moody’s said Southeast Asian banks’ financial position is backed up by the strength of the region’s sovereign credit conditions.

“Sovereign credit fundamentals in the region have withstood the global turbulence of the past two years. External positions are stronger now, reflecting a robust rebound in exports and resulting in record levels of official foreign exchange reserves for most countries in recent months,” Byrne said.

“Moreover, fiscal deficits have been moderate and the build-up in debt for most governments has been modest. In South East Asia we have upgraded Indonesia and the Philippines since mid-2009, while the two negative rating outlooks on Vietnam and Thailand were not prompted by the global financial crisis or Europe’s debt problems,” according to Byrne.

The last rating action on the Philippines was taken on July 23, 2009, when Moody’s upgraded the sovereign bond rating to Ba3 from B1 with a stable outlook.

Last year’s upgrade of the sovereign rating was prompted by the country’s strong external payments position and stability in the banking sector. These factors are expected to continue to provide support to the Philippines’ rating this year and next year.

Latest data showed that the country has enjoyed a balance of payments surplus of $388 million at end-May.


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