MOODY'S, a global credit researcher, said in its latest report that the SARS' impact on banks in mainland China, Hong Kong and Taiwan may prove transient while noticeable.
The report said SARS was weakening consumer sentiment as the local economy continued to reel from several years of deflation.
At the same time, Hong Kong's banks are well-capitalised liquid institutions that have successfully managed themselves through previous downturns, the report said.
It said Moody's believed SARS was likely to exert a minor but noticeable impact on bank earnings and asset quality. The exact extent of the impact would differ from institution to institution, but ultimately, the situation would prove recoverable, assuming that the disease could be controlled.
The pace of recovery would depend on the process of Hong Kong's economic restructuring, the global economy and growth in China, it said.
In mainland China, it said the government was now trying to deal more forcefully with SARS to regain consumer and investor credibility. If it was effectively contained, the impact on the economy and bank credit quality would be minor.
Moody's said SARS had so far not exerted as serious an impact on Taiwan as it had on the mainland and Hong Kong. If the disease was contained in a relatively short time, its impact should be minimal.
If it became a longer-term issue, it could exacerbate the banking system's negative structural issues.
In particular, any diminution of earnings could delay the current efforts of Taiwan's banks to improve asset quality and economic capital.
The report said that in all the above systems, bank profitability and asset quality were expected to deteriorate in the coming months as a result of SARS.
On the other hand, liquidity should strengthen due to the uncertainties the illness was generating and the resultant fall in consumption. But the extent of the negative impact depended on SARS' severity and duration, it added. – People's Daily
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