Asian banks rethink credit rating system

PHOTO: Asian banks rethink credit rating system

MALAYSIA - Several Asian banks including CIMB are making their voices heard on the world's credit rating system that may put financial institutions based in Asia at a disadvantage, according to CIMB Investment Bank chief executive officer Charon Wardini Mokhzani.

"Asian banks are coming together to say that there could be some fundamentals which are wrong in the credit (and) rating system. We still have some countries in Europe having a higher credit rating than that of some countries in Asia.

"Today you could argue that Asian countries have credit ratings which are far lower than justified. Because Asia is deemed more risky than Europe or the US, Asian banks have to set aside more capital than the equivalent bank in the US or Europe would have to," he said at the Malaysian Banking Summit 2013, organised by the Asian Strategy and Leadership Institute yesterday.

Charon cited Greece and Portugal, which until recently, had credit ratings that were better than China's.

"Obviously they now have junk ratings but there was a time when Portugal and Spain had better credit ratings than China," he said.

He noted that the prevalent situation may mean there was an urgent need to establish more credit rating agencies that are Asia-based, such as Dagong Global Credit Rating which is based in China.

"They could give a counterweight to perhaps what the S&P (Standard & Poor's) is thinking," he said.

Charon, an investment banker, however said that increased regulations was still required in global banking as faith in the system needed to be restored.

Meanwhile, at a separate session with several reporters, AmBank Group managing director Ashok Ramamurthy said that loan growth at the bank was expected at 9-10 per cent this calendar year, driven by corporate and commercial business banking.

At the same function, Second Finance Minister Ahmad Husni Hanadzlah said the Malaysian government expected to record a gross domestic product (GDP) growth of at least 5 per cent in the first half this year, while full-year expansion should range at around 5-6 per cent.

He said the local equity markets had seen huge short-term foreign inflows but noted that the local market was "wide and deep" to absorb these foreign capital flows.

"The subsequent withdrawal of these inflows will not cause too much distress to the system, as the liquidity is spread across the financial system. The excess capital is not concentrated in any particular sector. We are confident that the reversal of quantitative easing will not materially impact our economic growth," Husni said.

"External debt makes up only 4.5 per cent of our total banking system liabilities. Our reserves of US$136.1bil is healthy enough to finance 9.5 times of retained imports.

"We have very strong inflows of long-term capital to support GDP expansion - in the first quarter of this year total approved investments stood at 49.3 billion ringgit (S$19.5 billion)," he added.

"We have a very strong domestic economy but the worry is exports today which had gone down," Husni noted.