Credit rating for region's banks `stable': S&P

International rating agency Stan-dard and Poor's said on yesterday it has affirmed its stable credit rating outlook on the banking system of greater China.

"The outlook on the mainland China banking system remains stable rather than positive as continued strong economic growth, with flow-on effects to the coun-try's banks, is counterbalanced by the structural problems faced by the banking sector," Ian Thompson, the agency's credit analyst, said in a statement.

Standard and Poor's said that last week it revised its estimate of the ratio of impaired assets to total loans in the Chinese banking system to 44 percent to 45 percent from almost 50 percent but "emphasized that, despite the revision, the ratio remains one of the world's highest.

"The revision was made because of strong loan growth in the financial system and efforts by the country's bank's to write-off their impaired asset," Thompson said.

"However, given the brisk rate of loan growth over the past five years, latent credit risk from loans extended in recent years, particularly loans with long-tenor, could be high," he said.

On Hong Kong, Thompson said adequate capitalization and loan loss provisioning contributed to a stable outlook on the ratings on Hong Kong banks, even though the ratio for recovery of impaired assets remained under pressure from falling property prices as long as they remain employed.

"But despite the fall in real estate prices, problem residential mortgages have not risen to an extent that immediately endangers the banking sector's health. Individual borrowers tend to continue servicing their mortgages as long as they remain employed," Thompson said .

As for Taiwan, the rating agency recently revised its outlook on the banking system to stable from negative.

"Although the industry risks in Taiwan remain moderately high relative to other developing banking system, the Taiwan banking sector has made notable progress in resolving its high non-performing loan level, strengthening its low loan-loss provision coverage, and improving its credit risk controls," Thompson said.

He said these efforts will set the stage for the banking sector to gradually improve its financial health, but added that the industry has a considerable amount of work to do in resolving these issues, particularly risk management.

In Asia-Pacific, he said the picture for regional banking industry is "certainly not one of doom and gloom.

"Many Asian economies have begun to grow again since the regional slowdown in 2001, while many Asian banks have gradually strengthened their financial profiles since the years immediately following the 1997-1998 Asian financial crisis," he said.