Foreign banks picking the pearls amongst the stones in Asia

Apr 21, 1998 02:00 AM

Foreign banks are, even before Asia's economic crisis is over, already picking over the ruins looking for bargains.
Accountants from Wall Street and the City of London are visiting banks across Asia, examining their books, debt ratios and personnel files. They are working for American, European, and in some cases Asian banks, and they are going to make serious money.
Asian banks need hundreds of billions of dollars to recapitalise and most of the money will come from outside the region, offering rich rewards to those who buy potentially valuable assets at today's knock-down prices.
Investors hope the banks which survive the turmoil will be able to expand as many of their rivals will go under, taking a bigger share of what may soon become again a region of rapid growth. "The big winners in this process ultimately will be foreign banks -- if they do their research and due diligence carefully," said Donaldson Hartman, Southeast Asia banks analyst at Salomon Brothers in Bangkok.

Asia's banks are looking for a huge pool of new funds.
According to an official in Hong Kong, banks in 5 Asian countries need a total of almost $ 250 billion in new money over the next few years.
Sixty percent of that is needed by banks in China, and therefore still mostly off-limits to foreign investors. Analysts say the problems of Korean banks, estimated to need about $ 55 bn of new funds, could prove too daunting to potential foreign partners.
Overstaffing, too many branches and inadequate margins are likely to deter investors.
Malaysian limits on foreign ownership of banks, now set at 30 %, will also prevent or delay acquisitions.
But more than $ 30 bn is required by banks in Thailand and Indonesia and both countries welcome foreign capital.
Much of this new money will come from Europe and the United States, but some of it will be provided by banks in the stronger Asian economies, which are keen to expand regionally.
Singapore's Development Bank of Singapore and Oversea-Chinese Banking Corp are reported to be looking for acquisitions in Indonesia, as are Banque Bruxelles Lambert of Belgium and GE Capital.
Hong Kong's First Pacific Co and Standard Chartered Bank are rumoured to be on the look-out for cheap assets, possibly in the Philippines.
The next 2 years will see a rash of acquisitions across the region, starting with the bigger ones. But there are so many distressed banks, that many of the small, under-capitalised groups will be ignored by overseas money and go to the wall.
"They will be the losers," said an banking investment analyst at a Singapore brokerage firm. "The predators are going to look for the bigger banks." Bank Negara and Bank Internasional Indonesia could survive on their own, he says.
Many of these already have foreign suitors and will gradually grow as competitors fall by the wayside. Of the others, fewer than 5 are likely to attract foreign buyers and some of these are already part-owned by foreign institutions.
One group set to profit from the collapseof the Indonesian banking sector is foreign banks with networks already established in the country, including Hong Kong & Shanghai Bank. "Why buy a problem bank if you can just expand your existing operations?" asked an official.
Analysts say the next few months will see a "flight to quality," with money pouring into well-financed banks but shunning the smaller, indebted institutions which need funds the most.
One analyst said the race is on now to acquire cheap assets and he advised selective investments in the sector. "The Asian Miracle is not over. If you buy now and put your money in the right investment, when things go better again, you will benefit substantially."

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