ASIAN banks' published performances do not correspond to their true value in terms of credit risks, says a credit rating agency which has just surveyed the annual reports of 250 banks. ''There is little correlation between banks' performances as revealed in their annual reports and the credit risks they are actually exposed to,'' said Philippe Delhaise, director and senior financial analyst of bank rating agency Capital Information Services. He said published figures made Asian banks look healthy, but the actual picture could be different. ''For instance, in Indonesia loan-provisioning can be offset by the bank selling one of its branch premises to its own subsidiary, thus recording a book profit,'' Mr Delhaise said. In Hong Kong, the practice of maintaining inner reserves blocked investors from knowing the banks' actual performances, he said. ''We warn analysts that there is a danger in using the crude figures as a tool to make decisions,''he said. The survey analyses and compares Asian banks, using the three important banking indicators - profitability, capital adequacy and liquidity. Throughout the survey, banks in the Philippines and Hong Kong were seen as the most profitable. ''The Philippines has a well-developed banking system which has cleaned up its portfolio in the past few years,'' Mr Delhaise said. Similarly in Hong Kong, the sector has been dominated by a cartel of institutions which controlled much of the market, he said. Leverage figures, showing the relation of banks' equity to total assets, revealed that Chinese, Taiwanese, Indonesian and Indian banks were relatively under-capitalised. ''Translating the capital adequacy requirements of the BIS [Bank of International Settlements] into leverage ratio, the rule of thumb is that 15 to 20 times will be the appropriate level, corresponding to 10 per cent of the BIS ratio,'' he said. The BIS capital adequacy ratio required that banks should maintain a minimum of eight per cent. ''Because countries use different rules to calculate risk-weighed assets, the figures are not comparable. We prefer the traditional way of relating equity to total assets,'' Mr Delhaise said. However, the under-capitalised banks were mainly government-owned, meaning that government backing would be available if more capital was needed. ''We have not even taken into account the loan quality,'' he said. He reckoned that if proper loan provisioning was made, some of the banks would have had a negative capital ratio. Regarding banks' liquidity, Hong Kong and Singapore scored the highest, with Indonesia, South Korea and Thailand the worst three. The conservative Hong Kong banks usually exceeded the required liquidity ratio of 25 per cent by a large margin, and Singapore's small domestic market largely limited the ways money could go. ''Although Thailand is the worst, we are not concerned because the Thai banking system is tightly controlled by the Government,'' Mr Delhaise said. He was more concerned about the Indonesian banks which were relatively immature and did not have government backing. ''The private banks are open to all sorts of runs,'' he said. On Asian banks' general disclosure levels, he said: ''It is bad all over the region.'' They had reached a point where the international community did not want to deal with them because of scanty disclosure, he said. ''That has drawn recent bad comments from Moody's, saying that it is a shame the banks do not disclose more,'' he said. He said the problem had not been felt because banks were experiencing a good time, but it would be aggravated when their fortunes dipped.
