OECD Economic Outlook 69 - Biblioteca Hegoa

Substantial progress has been made over the past year in
restoring the soundness of the banking system in the three
Asian non-OECD countries hardest hit by the 1997 crisis
– Indonesia, Malaysia, and Thailand. The approaches being
taken to bank restructuring have also converged somewhat,
with separate bank asset management companies now playing
a key role in all three countries in dealing with non-performing
loans. Bank restructuring is being accompanied by efforts to
improve prudential standards and bolster governance. The
banking landscape is undergoing significant changes with
many banks either being merged, closed or having greater
foreign participation. However, the restructuring process is
still incomplete and subject to risks of a setback given the
more limited progress that has been made in resolving
non-financial corporate debt problems. Other future challenges
are to dispose of the problem loans acquired from the banks, to
re-privatise banks acquired by the governments in the
aftermath of the 1997 crisis and to deal with the large and still
growing costs of the bank restructuring itself.
Of the three countries, Malaysia is furthest along in its
bank restructuring process. Danaharta, the bank asset management
agency created by the government in 1998, completed
its acquisition of non-performing bank loans
(amounting to about 12 per cent of total commercial bank
loans) in 2000. Remaining non-performing loans, net of provisions,
had fallen to 9.6 per cent of total bank loans by the
end of 2000. Danaharta also made substantial progress in
working out the assets acquired from the banks and the
recovery rate has been rising. Capital injections of
RM 7.6 billion ($2 billion) of public funds have helped to
bring banks’ core capital adequacy ratio to 12.1 per cent in
January 2001, substantially above the minimum set by the
Bank for International Settlements (BIS). Despite several setbacks,
the government’s ambitious plan to restructure the
banking sector made significant progress in 2000 with the
establishment of six of the ten core financial groups ultimately
envisaged. Significant but less progress has been
made in corporate debt restructuring, which has been hindered
by government protection of some strategic enterprises
and restrictions on foreign ownership in certain areas.
further restore confidence, a new economic team was appointed in late March 2001,
which announced a plan to improve competitiveness in the economy.
The slowing US growth, weakening information and communications technology
trends and global effects induced by adjustments in this sector, are less important
directly for South America than for Asia. But, of course, a global economic downturn
would have important spillover effects. For Chile and Peru, in particular, slowing
demand in Asia would be a downside risk as it could significantly affect their
primary commodity exports. A significant fall in oil prices would also be a major
risk for South American oil exporting countries. It would lead to fiscal and external
imbalances in Venezuela, Ecuador and Colombia and could trigger political and
social unrest. For the area as a whole, the impact of lower world growth could be
Developments in selected non-member economies - 139
Box III.1. Banking sector restructuring in Asian crisis countries
Compared to Malaysia, Thailand’s restructuring of its private
banks has relied more heavily on the efforts of the banks
themselves. The private banks have been responsible for
establishing asset management companies to carve out their
non-performing loans. Most banks have chosen to raise capital
in the market to meet the progressively higher requirements
set by supervisory authorities rather than participate in
the government’s voluntary re-capitalisation programme.
Indeed, banks have had substantial success in raising capital
from domestic and foreign investors, and managed to raise
their capital adequacy ratio to 11.4 per cent by the end
of 2000. However, non-performing bank loans declined gradually
and were still above 30 per cent of total loans as late as
August 2000. They have since dropped much further to
below 20 per cent, as banks transferred assets to their
recently established asset management companies and as the
maturity of loans rescheduled earlier was extended. But new
non-performing loans continue to emerge, remaining nonperforming
loans are proving to be more difficult to restructure,
and banks appear reluctant to write down bad loans.
Progress on non-financial corporate sector debt restructuring
has also been more limited and there continues to be “strategic
withholding” of loan payments by some corporations that
are able to repay.
Despite its exceptionally severe economic problems,
Indonesia has also made considerable progress toward restoring
its banks to financial soundness. By the end of 2000, the
government-established Indonesia Bank Restructuring Agency
(IBRA) had carved out 82.6 per cent of banking sector nonperforming
loans, bringing the overall non-performing ratio
down to 18.8 per cent. However, less than 3 per cent of the
assets acquired had been disposed of by early this year. The
government programme to inject capital into three state banks
and three private banks was completed in October 2000,
although it was only able to raise their average capital adequacy
ratio to 4 per cent, or half the BIS minimum. Further
progress in bank restructuring continues to be limited by the
weakness of the economy and especially by the non-financial
corporate debt overhang. Corporate debt restructuring has
been gaining momentum but bad debts remain massive.
The slowdown in the United
States is expected to have a
limited impact on the region
© OECD 2001