1997 Asian crisis unlikely now: S&P

A financial crisis similar to the 1997 Asian crisis is unlikely to recur, as banking systems in the region are better placed to survive possible stresses, according to the "Asia 1997 Retrospective" series of three reports published by Standard & Poor's Ratings Services today.

Key factors such as high foreign currency indebtedness of companies and external liquidity vulnerability of sovereigns, providing the backdrop to the 1997 crisis are no longer as prevalent, according to the report "Asia 1997 Retrospective: Repeat Of 1997 Crisis Unlikely."

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

In addition, many banking systems have fully regained the economic role they played before the crisis. "Nevertheless, the overall increase in the debt of sovereigns and, to a lesser extent, corporates remains a concern," adds Chan.

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 and Thailand.

In India, corporate indebtedness as a percentage of GDP rose from 26 per cent in 1996 to 43 per cent in 2005.

Similarly, government indebtedness expressed as a percentage of GDP grew from 63.26 per cent in 1996 to 88.75 per cent in 2005.

According to the report, "Asia 1997 Retrospective: Today's Banks Likely To Survive Stress Scenarios" Asia's banking systems have strengthened since 1997, although some have yet to regain their full pre-crisis credit strength.

"There is more governance, improved asset quality, and some consolidation in Asia's banking systems, and these are now better equipped to withstand potential crises," said Standard & Poor's credit analyst 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 the most vulnerable to sharp rises in non-performing assets in times of crises," said Chee.