SAN FRANCISCO -- Asian banks' bad-debt crisis could either spell doom for economies across the globe or could be moving toward its conclusion, according to assessments given recently at an Association for Investment Management and Research conference in San Francisco.
The repercussions of non-performing loans will prevent banks from extending credit, and economic growth will stall across the globe. "International banks are going into a shell," warned Jim Walker, chief economist with CLSA Global Emerging Markets, Edinburgh, Scotland.
Not so, said Robert Zielinski, head of Asian financial institution equity research for Lehman Brothers in Tokyo. "Japan will solve its banking crisis in two years," he said.
Both agreed, however, that equity markets around the globe won't perform well if Asia's banks don't clean up their books -- and soon.
Weak link: banks
Mr. Walker pointed to the global banking system as a weak link in the global economic chain.
"The problem of Europe is the problem of the contagion that has spread since the Asian crisis," Mr. Walker said. "It's the problem of banks." The amount of bad loans on the books of Asian and European banks is staggering, he said.
Mr. Zielinski said bad loans in Asia, from Thailand to Japan, total a little more than $1.4 trillion. Japan is far and away the leader, with over $1 trillion in problem loans.
And the implications will be felt the world over in 1999 as even the U.S. economy cools. "International banks have made a right mess of their lending policies over the past few years. European banks can't lend to people who need the money," Mr. Walker said.
Asia's economies continue to contract, Mr. Walker said. And they can't export their way out of recession. "They need to move toward consumption."
Non-performing loans, he said, have peaked in South Korea and are close to peaking in Singapore and the Philippines. Thailand is considering, but has not yet passed, bankruptcy laws, and 100% of Indonesia's loans are bad.
Korea looks good
But Mr. Zielinski gave a more sanguine assessment of Asia's and the world's banking sector.
He compared South Korea with Japan in a tongue-in-cheek "World Cup of Bank Restructuring." "Korea looks excellent while Japan looks stupid," he said.
Changes in Korea came quickly last year, while they lag in Japan, he said. Most of the banks in Korea have new management and they now have outstanding disclosure, he said. And bank stocks perform in kind. "The best performing banks in the world in 1998 were Korea's," he said.
Japan has been slow to face its problems and its banking sector index is way down, he said.
Japan's government won't let its banks, weighed down by billions in bad real estate loans, fail. "Five banks have disappeared in eight years," he said. Loans in Japan haven't grown since 1994.
His conclusion? "Japan has learned from Korea." Japan's government let the Nippon Credit Bank fail in December, a signal to other banks they better merge or they will be allowed to disappear. And the pace of mergers has picked up in recent weeks, he said.
The Japanese bank index could double by the end of March, he said. "You need a healthy banking industry" to get an equity boom in Japan, he said. "Unless banks recover, there will be no stock market recovery there."
The good bank buys, he said, included Sanwa Bank Ltd., Sumitomo Bank Ltd., and Mitsubishi Trust & Banking.
