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In the fifth year of the Asiaweek Financial 500, the Great Shakeout begins.
By Tim Healy
Save this magazine. It will be an invaluable record of the way things used to be in Asia - before the Great Bank Shakeout at the end of the 20th century. In just the past few weeks, Indonesia has begun an h istoric restructuring: 32 banks have been identified for merger, liquidation or nationalization. South Korea recently announced the merger of its third- and sixth-largest banks into a new institutution that will be the country's largest. Thailand has nati onalized six commercial banks - and decided to liquidate four of them. And the Japanese government is trying to force Sumitomo Trust & Banking, the 19th-biggest bank as ranked by Asiaweek's Financial 500, to take over the crippled Long-Term Credit Bank of Japan (No. 13).
This year's Financial 500, Asiaweek's fifth annual ranking of the region's largest commercial banks and life insurance companies, is a catalogue of woe. The total assets of the 500 listed banks have fallen nearly 11% in the past year. In both South Korea and Thailand, the same number of institutions made the list in 1998 but they are worth much less - 42% less in South Korea's case and 36% in Thailand's. The lousy performance of Asia's banks in general show ed in the bottom line. Together the 500 institutions earned 22% less in profits this year than in 1997. And talk about losses. Most of the bad news comes from Japan, where banks hemmorhaged a staggering $36.8 billion, or 14 times more than they did in 199 7. (Losses aren't figured into 500 profit totals.)
Worse is still to come. Banking problems are at the root of the Asian Crisis. In a sentence, banks lent too much money to too many people for unproductive uses. The currencies meltdown that began in Thailan d in July 1997 merely exposed the system's frailties. "The weaknesses were there," says David Marshall, Hong Kong-based managing director for Asian financial institutions at ratings agency Fitch IBCA. "But it was not at all easy to foresee a crisis." Or h ow this one will end. Financial troubles now have spread to Russia and Latin America. Many bankers are concerned that a second wave of devaluations may be headed this way.
And Asian banks are standing on shaky ground. They can recapitalize. Or close. But consider the complications. They must attract capital to cover bad loans when they look the least appealing to potential in vestors. They must be especially tough in demanding that borrowers repay loans during the region's worst recession in four decades. And they must cut costs - the obvious place to look is bloated workforces - at a time when unemployment rates are at record highs.
Exacerbating the situation is the fact that Japan, which should be leading a recovery, is still falling behind. For more than six years, people have believed that Japan's banking problems could be fixed. An y time now. It is the world's second-largest economy, it is a nation of diligent savers. It has an enormous store of cash and investments and a healthy trade surplus. And yet. In this year's ranking, by almost all measures Japan's banks lost ground. Mostl y that was because of a weakening yen, but the proportion of assets, deposits and loans held by 150 Japanese banks also declined slightly compared to the rest of the region. The only category in which Japan's banks clearly exceeded their performance last year was in losses. There's more: Japan's 19 largest banks carried $259 billion in stocks on their balance sheets as of March 31, according to Moody's Investors Services, a debt-rating company. "Because of the enormous size and the increasing volatility o f the equity markets," writes Moody's in a recent report, "Japanese banks face significant market risks."
All prices reported in ASIAWEEK are in U.S. Dollars unless otherwise specified.
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