Bookkeeping problem for revitalisation Asian banks

Apr 10, 1998 02:00 AM

Some 150 banks in Asia are insolvent, but that is less of a problem for the region than illiquidity, the head of Thomson Bankwatch said recently. "The state-owned banks are a large chunk of the banks that we believe are in serious trouble and therefore there is absolutely no danger on that side" because of full government support, Philippe Delhaise, president of the banking analysis and ratings group, told. In addition, he said, there are a number of insolvent banks that enjoy a high degree of support from regulators.

The number of private banks in Asia is relatively small, so rescuing them would not have a tremendous impact on government budgets.
"We are of course aware of the IMF's suggestion that their money or taxpayers' money should not be used to bail out the losers and conceptually we agree," said Delhaise. Merging troubled private banks with government bodies would be the best route, he said.
Asked if Asian governments had the resources to prop up ailing banking sectors, Delhaise said maintaining insolvent banks was technically possible and actually not very difficult. "We've seen examples over the last 20 years of governments of countries that are much, much poorer than these countries and which have been able to maintain a banking system... with banks that are obviously bankrupt," he said, citing Pakistan, Bangladesh, Sri Lanka, India and Vietnam.
But solvency was not the main problem usually. "Liquidity is more relevant than solvency in most cases." He said banking problems in the region were likely to look worse in future when proper accounting was made of non-performing and bad loans.
It was difficult, if not impossible, to properly value banks in some Asian countries, making the necessary recapitalisation harder to achieve by discouraging foreign banks from taking a stake in troubled institutions. "You have seen a number of international banks looking at say, banks in Thailand and deciding that no reasonable offer can be made because they just don't know what's in there, either because it is impossible to figure out today technically what is the value of the assets or because books are not kept in the proper way," Delhaise said. "And that makes life impossible for the regulators because what Asia needs today is a huge recapitalisation of its financial systems...which will not be forthcoming unless people know what they are talking about."

Source: not available
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