Thomson BankWatch Asia believes banking systems have not been recovering as rapidly as the region's economic recovery might suggest and that banks are still struggling for fresh funds to recapitalise and reduce bad-loan levels.
President Philippe Delhaise said most Asian banks had seen their effective capital ratios dive close to zero or even to negative levels, making it very hard to work out reasonable valuations to attract fresh capital from foreign investors.
He said Asian banks had also been hurt by large amounts of related-party lending - which might not even exist on their books - making their capital adequacy ratios actually much worse than those they had announced officially.
'A bank owner might have $8 to back every $100 in lending, as the current norm prescribes. But he might have borrowed $25 from the bank. So the effective capital ratio is minus 17 per cent instead of 8 per cent.' Mr Delhaise said the high level of bad loans on most Asian banks' books had taken away their capacity to generate enough recurrent income from their assets, making them even less attractive to foreign investors.
Some Asian governments might choose to establish asset-management companies to buy the bad loans from banks in an effort to reduce bad-loan levels. Mr Delhaise said proper regulations had not been put in place in most Asian nations so that these bad loans could be sold by banks to asset-management firms without recourse.
That meant there was a possibility that if the asset-management firms were unable to re-sell the bad loans to parties outside the banking system, they still had the right to transfer the loans back to the banks, defeating the purpose of the exercise.
