Asian banks’ continuing progress will depend on how the authorities of individual countries react to unforeseen events.

On the surface, the Asian banking sector appears to be continuing its slow but steady recovery from the 1997-1998 crisis, with aggregate Tier 1 capital for our Top 200 growing 5.5% over 2001, aggregate assets growing 15.8% to $5433bn and aggregate pre-tax profit growing 6.5% to $32,799m. However, the start of 2003 introduced several uncertainties – with the war in Iraq and the outbreak of SARS dominating – which threatened a recovery that, at country level, has often seemed fragile. Add to this the ensuing terrorist activities in Indonesia and the recent military mutiny in the Philippines and it becomes evident on a country by country basis that the strength of the underlying macroeconomic fundamentals and the authorities’ ability to respond quickly and appropriately to the political and economic shocks that occur will determine whether this recovery can be sustained.

Major players

Looking at the major countries represented in our Top 200, Hong Kong – which has flirted with recession on several occasions in the past five years, was particularly hard-hit by SARS and, in a continuing deflationary environment with a weak property sector – banks are likely to find the going tougher still (aggregate pre-tax profits for the 11 banks in our Top 200 fell 3.7% to $5178m in 2002). However this pales into insignificance when compared to Taiwan, where the 41 banks in our listing recorded an aggregate pre-tax loss of $3145m. In an export-dominated economy, the world slowdown is more keenly felt, however the consensus is that the sector is over-banked and crying out for consolidation, as well as needing substantial capital injection.

Non-performing loan (NPL) ratios have been slowly declining and initial attempts at consolidation are being made with limited success. Fubon Financial Holding purchased Taipeibank in 2002 to complement its own Fubon Commercial Bank, but both banks operate and report as separate entities. With presidential elections due in 2004 there is little political will to force banking sector consolidation.

Thailand’s economy is buoyant with GDP growth of 5.2% in 2002 driven by increased domestic demand and export volumes. Inflation is low at 0.7% and unemployment has fallen to around 2.4%. In the banking sector NPLs are a major problem, although banks have been dealing with these and other non-performing assets by restructuring or by transfer to their own asset management companies.

South Korea continued its economic recovery in 2002 with GDP growth of 6.3% due to domestic consumption and a rebound in exports. Foreign capital has been attracted back to the country as evinced by the recent acquisition of Korea Exchange Bank by Lone Star, the US investment fund and the news that Goldman Sachs is looking at acquiring a 24% stake in Kyobo Life Insurance.

Big four dominate

The Top 200 listing is dominated, as last year, by the big four Chinese banks (although Bank of China has taken over the lead from the Industrial and Commercial Bank of China). The number of Chinese banks in the listing has increased by one to 17, with the arrival of Beijing City Commercial Bank. In China, NPLs remain a cause for serious concern, as does the June 2003 announcement that the National Audit Office had uncovered serious fraud at the largest property lender, China Construction Bank.

As previously mentioned Taiwan has the largest representation in the Top 200 with 41 banks, followed by India with 33, down from 38 the previous year mainly through the consolidation of all the individual state banks into State Bank of India’s accounts. The banking sector in India had a good year with aggregate pre-tax profits rising 73.5% to $4336m.

Newcomers to the list this year are the two banks from Myanmar, Myanmar Investment and Commercial Bank and Myanmar Oriental Bank, and Banque Socredo from Tahiti.


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