How Risky Are the Banks? an Asia-Pacific Comparison: On Standard & Poor's Estimates, the Banking Systems of Australia And-To a Lesser Degree-New Zealand Stand out among Their Asia Pacific Neighbours in Terms of Industry and Economic Risk. (Risk Management)
Thompson, Ian, Chan, Terry, Faibf, Gavin Gunning, Nemoto, Naoko, Yamaoka, Takamasa, Journal of Banking and Financial Services
Perhaps not surprisingly, the economic and industry risks of the 14 Asia-Pacific banking systems vary widely. The Australian, New Zealand and Singaporean banking industries stand out as having the lowest risk among the Asia-Pacific systems although the latter two rank only "moderately low" on a global yardstick.
Next is Hong Kong, with a moderate risk profile. The banking sectors of Japan, Korea and Taiwan have better economic risk than they do industry risk and hence, moderate to moderately high risk profiles.
They are followed by the banking sector of Malaysia which, however, has higher economic risk than the three sectors.
Risk escalates significantly in the banking systems of India, the Philippines, and Thailand, which are classified as high risk. The systems in China, Indonesia, and Vietnam have the highest risk of all.
Low to moderately low risk
The country's medium-term economic growth prospects continue to compare favorably with those of developed Western countries. Australia is expected to benefit from fiscal prudence, trade and investment liberalisation and reasonably conservative macroeconomic policies, combined with microeconomic structural reforms that have increased labour market productivity and flexibility.
Although the economy has contended more than satisfactorily with the spillover effects from the Asian crisis and the more recent US economic downturn, it nevertheless remains susceptible to external shocks because of a private-sector savings deficiency, which is reflected in a high current account deficit.
Industry risk for the banking sector is mitigated by prudent banking regulation and transparent and well-developed accounting standards and reporting practices.
The banking industry remains characterised by increasingly intense competition, relatively thin interest margins and a regulatory environment that is more focused on internal governance than are its peers.
There is close integration between the larger domestic banks and their Australian parent banks. The risk profile of the New Zealand banking industry is considered to be moderately low.
However, increasing levels of gross private-sector indebtedness and foreign borrowings as a proportion of GDP leave the sector vulnerable to external shocks.
The country enjoys fairly strong economic fundamentals, although vulnerability to the recent downturn in the global electronic sector helped push the economy into recession in 2001.
Nevertheless the country's substantial domestic savings represent a significant economic advantage, which, together with a reasonably conservative lending approach on the part of the three domestic banks, has meant that the gearing levels of corporates and households are comfortable. This in turn has kept problem loans for the banks at manageable levels.
The banking regulator, the Monetary Authority of Singapore, has a sound track record. Both economic risk and industry risk remain moderately low.
A shortcoming of the territory's economy is its traditional reliance on the real estate sector. The economy has slowed down since 1997, amid falling real estate and consumer prices, as well as rising unemployment.
Nevertheless, the domestic corporate sector, which is dominated by a few major groups, remains financially strong despite subdued profits.
Bank profitability has come under pressure, although problem loans remain manageable, allowing the domestic banks to maintain good credit profiles. A competent regulator oversees the sector. Overall, economic risk and industry risk are moderate.
The economic risk facing the country's banking sector is moderately low. Despite a long-term slump in the economic growth rate and limited options available to the government to stimulate the economy (given nearly zero short-term interest rates and a massive fiscal deficit), Japan has the second-largest economy in the world in terms of GDP. …