Despite moving more than $1 trillion in nonperforming loans off their books since the Asian Flu crisis of the late 1990s, Asia’s banks and asset management companies must resolve another $1 trillion in bad loans says a new report from consultants Ernst & Young.
Ernst & Young says Asia’s banks have another $1 trillion in NPLs remain on the books of the region’s banks and the government-created asset management companies (AMCs) that buy bad loans from banks. In addition, banks in Germany and other European countries are carrying at least $300 billion in bad loans, the report says. While a few European countries have resolved their NPL problems, most are just beginning to address them.
“Asia’s banks have made remarkable progress in disposing of their bad loans, but they need to keep the momentum going — they cannot afford to become complacent,” says Jack Rodman, an Ernst & Young managing director based in Beijing. “China and Japan together account for about 85% of Asia’s NPLs, and they have strong reasons for resolving their NPL problems.”
China’s four state banks are working to strengthen and recapitalize their balance sheets to prepare for the entry of foreign banks into the China market in 2006. In Japan, banks are trying to dispose of NPLs and raise fresh capital to support the country’s still-fragile economic recovery.