Asia-Pacific bank ratings stable: S&P

Global rating agency, Standard & Poor's today said the ratings of commercial banks in Asia-Pacific would remain stable.

In its Asia-Pacific Banking Outlook 2006, S&P said Indian, Indonesian and, especially, Chinese banks are benefiting from favourable economic conditions.

S&P credit analyst Ping Chew said, "Most banking systems in the Asia-Pacific region have improved their credit profiles, thanks to stable economic conditions and continuing structural improvements. This is in spite of rising oil prices and interest rates threatening the broader economic recovery."

In the next few years, most banks should continue with these improvements, although the pace of such improvements may be moderated by risks in the horizon, Chew added.

In 2005, there was a significant increase in the number of bank rating upgrades, largely because Standard & Poor's carried out a review of its criteria for government support of banks.

Over the course of the year, the average rating of Asia-Pacific banks rose by half a notch from BBB prevailing at the onset of 2005. According to S&P, credit improvements are likely to be slower and more incremental.

Highlighting the outlook for 2006, another S&P analyst Ritesh Maheshwari said, "The low-hanging fruits in the non-performing assets (NPA) pools have been picked and any further reduction in NPAs would come from resolution of the relatively intractable assets."

He further said, "Structural improvements in banks' income profiles mean that profitability of Asian banking systems will be largely sustained at current levels, and the strengthening of risk management practices will continue at a quicker pace."

The research suggests that it is more likely for consistency to be found in the improvement of banks' credit quality across all Asia-Pacific markets.

"Japanese banks are reporting some meaningful profit figures, Korean banks are improving their risk management techniques, and in Taiwan, the regulatory regime appears to be changing for the better, although politics on the island may prove a stumbling block," said the S&P report.