Asian efforts to reduce the mass of bad loans in the region threaten to slow down, partly because of a reluctance to let assets fall into foreign hands, consultancy Ernst & Young said on Monday.
Asian banks have cleared more than $1 trillion in non-performing loans (NPLs) over the six years since an economic crisis ravaged much of the region in 1997/98, Ernst & Young said in its 2004 global NPL report.
But another $1 trillion still weighs on the region's bank books, threatening to hamper growth in China and elsewhere and stifle a nascent recovery in countries such as Japan, saddled with the highest volume of NPLs in the world.
"Asia's banks have made remarkable progress in disposing of their bad loans, but they need to keep the momentum going - they cannot afford to become complacent," said Jack Rodman, the author of the report and an Ernst & Young managing director in Beijing.
In comparison, European banks are carrying at least $300 billion in bad loans, according to the report.
Rodman said China and Japan together account for about 85 percent of Asia's NPLs.
Banks that must make provisions against loan losses when borrowers fail to make payments may find themselves too strapped or too wary to lend to healthy businesses, slowing economic growth.
China, which is working to clean up its banking sector ahead of liberalisation in 2006, has cut about $200 billion in bad loans from its banks' books over the past six years.
Japan, still emerging from a decade-long stagnation caused partly by overzealous bank lending, has been able to slash some $600 billion in bad debt.
In a bid to dispose of NPLs, banks have sometimes resorted to selling the assets to foreign investment funds - a growing business in Japan but one rife with political complications.
The sale of the failed long-term Credit Bank of Japan by the government to a Ripplewood Holdings-led consortium prompted much soul-searching as the nation debated the wisdom of letting a Japanese lender fall into foreign hands.
A stake in the bank, renamed Shinsei Bank, was successfully floated on the Tokyo stock market in February, its shares soaring nearly 60 percent on the first day of trade.
Rodman said future success in tackling NPLs globally meant giving foreign funds - which have amassed as much as $20 billion to acquire distressed assets world-wide this year - a bigger role.
"The success of the NPL market depends on foreign investors taking the initiative to buy portfolios of bad loans and, in some cases, bad banks," he said.
Other Asian nations have made moves to slash bad debt from their financial systems, the report said. Indonesia, South Korea and Thailand - major victims of the 1997/98 Asian crisis - have erased $257 billion in bad loans since the crisis, with South Korea making up $125 billion of that total.
Comments
Comments are closed.