S&P sees healthy credit growth in Asia

Standard & Poor's (S&P) on Thursday said corporate credit quality in Asia, excluding Japan, continues to improve, a trend evident since the aftermath of the regional financial crisis in 1997-1998.

The default rate declined to zero in 2004 from 7.2 per cent in 1998. No default was recorded in 2004 and 2003 for rated issuers, S&P said in its first default study on Asia.

It said the improvement in overall default rates was due to an improvement in general economic conditions, financial restructuring by many issuers, and an increase in the proportion of investment-grade ratings.

Investment-grade issuer ratings now comprise 51.5 per cent of all issuer ratings in the region, compared with 31.4 per cent five years ago.

The rating agency said when compared with S&P's global default database, the cumulative default rates for Asia ex-Japan have been slightly better than those of the global pool.

However, the Asia result is from a relatively small pool of issuers and over a shorter period.

Ratings in the Asian region tends to change more often and are more volatile than the global average. The frequency of annual rating changes between 1991 and 2004 averaged 31.4 per cent compared with the global average of 27.5 per cent for 1981-2004.

This can be partially explained by the impact of the regional financial crisis and the volatility embedded in the statistical limitations of a smaller pool of issuers and a more compressed period of study.

It also indicates that the Asian pool is located in a more volatile economic and political environment than the pool for the global study.