Thu, Jan 22, 2009 - Page 12 News List

Fitch warns of rise in bad loans, drop in revenue

DOWNTURN The ratings firm said that banks in Taiwan and South Korea were likely to book losses owing to thin profit margins and sizeable credit losses

By Kevin Chen  /  STAFF REPORTER

With a grim economic outlook ahead, banks in Asia are expected to witness lower revenues and a rise in bad loans this year, Fitch Ratings said yesterday.

Fitch’s remark came after the agency yesterday released its most updated assessment of the outlook for Asian economies and banking sectors this year.

For most of Asia, banking systems are likely to see “reduced but, for most systems, still positive levels of net profitability,” Fitch said in a statement.

But those in Taiwan and South Korea are exceptions, as banks in those two countries are likely to book losses in their balance sheets this year owing to thin profit margins and sizeable credit losses, Fitch said.

“Fitch expects these trends to give rise to the need for additional capital both to offset the effect of credit losses and to boost capital levels to the new higher norms that are becoming the standard in the wake of the credit crisis,” the statement read.

Fitch wasn’t the only ratings agency to raise doubts over the Taiwanese banking sector’s performance amid adverse market conditions worldwide.

Standard & Poor’s Ratings Services yesterday placed its long-term counterparty credit ratings on both Cathay Financial Holding Co (國泰金控) and Shin Kong Financial Holding Co (新光金控) on CreditWatch with “negative” implications, citing an adverse impact on the companies’ capitalization and profitability owing to the ongoing global financial turmoil.

Cathay Financial is the parent company of Cathay Life Insurance Co (國泰人壽), Taiwan’s largest life insurer. Shin Kong Financial controls Shin Kong Life Insurance Co (新光人壽), the nation’s second-largest life insurer.

“The CreditWatch action reflects the rising uncertainties over whether the Cathay Group and, in particular Cathay Life, can maintain above-average operating performance and good capitalization over the next one to two years amid unfavorable global financial market conditions,” Serene Hsieh (謝雅瑛), an associate director at the ratings agency’s financial service rating division, said in a statement.

As for Shin Kong Financial, the CreditWatch action also “reflects the rising uncertainties over whether the Shin Kong Group can stabilize its operating performance and restore its capitalization — particularly at Shin Kong Life, which has generally dominated the group’s financial profile,” S&P credit analyst Andy Chang (張書評) said in a separate statement.

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