Standard & Poor’s (S&P) said yesterday the downturn in the US banking sector would have a strong impact on financial institutions around the globe, but Asia should avoid the brunt of the impact.
“The global banking development is mainly a story of what’s going on in the US,” said Scott Bugie, S&P’s managing director of financial services.
Ritesh Maheshwari, senior director of S&P’s financial institutions ratings for Asia excluding China, said in a teleconference yesterday that Taiwan’s banking system was structurally resilient to moderate increases in credit defaults.
Taiwan should weather the storm fairly well, Maheshwari said.
Moreover, Maheshwari said he saw increased system indebtedness in Taiwan.
On a scale of 1 to 10, he gave the country a score of 4 in terms of potential risks.
S&P forecast economic growth would slow down to 4.3 percent this year, compared with 5.7 percent last year.
S&P said that although Asian banks were not directly impacted by the US subprime crisis and slowdown in the US financial system, they were not immune either. On average, the ratings agency forecasts a 1 percent decrease in economic growth for the region.
By comparison, Asia is doing much better than the US or Europe and will contribute 50 percent of global output, S&P said.
At the conference, S&P also shared its outlook for the financial services industry in Vietnam, Singapore, China and India.
It said economic turbulence would be most severe in Vietnam and that slower growth was expected for this year and next year, spreading to the banking system because of a high leverage rate.
S&P said that as Vietnamese banks were still in an early developmental phase, it did not believe the country had the experience necessary to weather the economic slowdown unscathed.
Singapore, on the other hand, would be the least affected Asian banking system because of its deleveraging efforts in the past two years and its mature financial services landscape, S&P said.
Maheshwari said a “combination of credit growth and economic slowdown [would] affect the Chinese banking system. But the intensity still needs to be seen.”
He also expected a slight drop in earnings and deteriorating asset quality to affect the Chinese financial environment.
In India, he forecast a similar situation.
Growth would fall 1.4 percent, but since banks’ leveraging had increased over the past two years, the financial system’s credit-taking capability would be tested, Maheshwari said.
High inflation, coupled with limitations on borrower repayment capability, would have a negative impact on asset quality for Indian banks, he said, adding that higher default loans were likely.
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