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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story


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THERE ARE MANY WAYS to measure the depth of the banking industry's problems. Consider this one: The loan portfolios and the value of collateral held to cover lost loans continue to lose value. "Asset quality is deteriorating to an extraordinary extent," says Marshall of Fitch IBCA. The number of bad loans is beginning to reach frightening heights. Typically, about 2% of the loans at a healthy bank will be non-performing - defined usually as those that are not serviced for at least three months. A rate of less than 5% is considered acceptable. More than 10% is a problem; more than 20% a disaster. In Thailand the rate is reckoned to be as high as 40%. In Korea, about 30%. Malaysia's situation is better, Indonesia's worse.

"It's a real catastrophe," reckons Marshall. "Banks are seeing their capital wiped out not just once but twice or three times." In Japan, non-performing loans seem to grow despite regular attempts by banks to write them off. According to the government's new Financial Supervisory Agency, Japanese financial institutions altogether had more than $600 billion in bad loans at the end of March. The number, based on more stringent reporting standards than were previously in place, was more than double what the banks themselves had reported.

The bad loans have caught bankers out. Deborah Schuler, vice president of the Banking Group of Moody's Asia Pacific, says banks all across Asia were guilty of plowing money back into loans rather than saving their capital for a rainy day. Before the crisis in Thailand, Bangkok Bank had set aside 3% of its loan portfolio to cover losses. Other banks had saved far less. Most Thai banks have since boosted their reserves for bad loans, but the amount is still far short of what they are likely to need.

Singapore's banks were relatively cautious in this regard, but even they are having to boost loan-loss reserves to account for the increasing number of non-performing loans. Overseas Union Bank (No. 77) reported that profits dropped 28% in the first half of 1998. DBS (No. 44) reported a 50% decline in profits. Tat Lee Bank (No. 216), which has finalized its merger as a wholly owned subsidiary of Keppel Bank (No. 184), reported steep interim losses on the order of $69 million - a first for a Singapore bank. In each case, hefty provisioning for non-performing loans was largely the reason for the grim numbers.

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This edition's table of contents | Asiaweek home



U.S. secretary of state says China should be 'tolerant'

Philippine government denies Estrada's claim to presidency

Faith, madness, magic mix at sacred Hindu festival

Land mine explosion kills 11 Sri Lankan soldiers

Japan claims StarLink found in U.S. corn sample

Thai party announces first coalition partner


COVER: President Joseph Estrada gives in to the chanting crowds on the streets of Manila and agrees to make room for his Vice President

THAILAND: Twin teenage warriors turn themselves in to Bangkok officials

CHINA: Despite official vilification, hip Chinese dig Lamaist culture

PHOTO ESSAY: Estrada Calls Snap Election

WEB-ONLY INTERVIEW: Jimmy Lai on feeling lucky -- and why he's committed to the island state


COVER: The DoCoMo generation - Japan's leading mobile phone company goes global

Bandwidth Boom: Racing to wire - how underseas cable systems may yet fall short

TAIWAN: Party intrigues add to Chen Shui-bian's woes

JAPAN: Japan's ruling party crushes a rebel at a cost

SINGAPORE: Singaporeans need to have more babies. But success breeds selfishness

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