STORIES BY YAP LENG KUEN, K.P. LEE, JAGDEV SINGH SIDHU, HANIM ADNAN, LEE KAR YEAN, PAULINE S.C. NG, HONG BOON HOW, KATHY FONG, DALJIT DHESI, P.W. THONG, YVONNE CHONG, DAVID TAN, DANNY YAP, ELAINE ANG AND YAP LIH HUEY
IT’S still too early in the day to gauge how banks may be impacted by the US-Iraqi war, but traditionally, being a conservative sector, banks are expected to turn more conservative.
A senior banker in the international banking division of a local bank said banks are generally most concerned about two factors – liquidity and credit risk – both of which can leave banks in a dicey state.
“War is market risk as it has global effects. Banks will ensure that their assets are good assets,” he said.
That being the case, corporates can expect to be subjected to greater scrutiny by banks that would now be asking, “are these companies vulnerable (to the effects of war)?”
Banks would look closer at what could go wrong in the business operations of their clients or prospective clients and question whether war could halt or delay shipments of essential raw materials, for example, or whether a company uses plenty of crude oil as its raw materials, given such factors could substantially raise the cost of doing business.
The senior banker thinks that there is likely to be an increase in business costs for most corporates.
On the banks’ side, cutting back credit lines could mean less income, but also less credit risk.
The senior banker advises banks not to “insulate” themselves, but to minimise risk, noting opportunities exist in times of adversity.
Banks could have clients or prospective clients coming to them for advice and if they do well, the client could become a client for life. Conversely, banks could also lose good clients if they do not handle these accounts with sensitivity.
On the economic side of things, Mayban Securities said it is currently maintaining its growth forecast.
It noted that banks such as Public Bank Bhd had already lowered its loans and earnings growth expectations for 2003, and anticipates other banks to follow suit.
Assuming that the war drags on for more than two months, the impact locally on banks would then be more obvious, but lagging.
“If the US economy really contracts to a serious level, there’ll be a lag effect of six to 12 months,” said a Mayban Securities analyst, adding that a prolonged war could well result in a spike in non-performing loans and slower loan growth.
Did you find this article insightful?