Asia bank outlook increasingly negative, shares slump

By Kim Coghill

SINGAPORE (Reuters) - The outlook for Asia's banking industry is turning increasingly negative, as banks from South Korea to Australia battle growing financing fears and brace for more bad debts as economies slow.

Asian lenders have managed to mostly dodge the ravages of the subprime mortgage meltdown but now must survive depressed markets and a darkened economic picture.

"In the short-term, banks dependent on the cross-border capital markets and money markets will remain under the highest stress. In Asia, this includes most banks in Australia, New Zealand, and Korea," Jerry Chien, managing director, financial institutions for Moody's Asia Pacific, said in a report.

"Over the next 12-18 months, we expect banks to be facing the more traditional cyclical risks of an economic downturn, complicated by lingering inflation," he said, as shares of banks in Asia continued to plummet on fears of recession and weaker earnings.

South Korea, which has more negative rating outlooks on its banks than any other country in Asia, said on Thursday it planned to inject more foreign exchange liquidity to local banks to keep financing in its export-reliant economy working smoothly.

But government moves did little to calm investors, with the country's stock index falling over 9 percent, led by top lender Kookmin's parent (105560.KS: Quote, Profile, Research, Stock Buzz), which plunged 15 percent.

Many analysts fear South Korea's banks could be the next victims of the global financial crisis, with their heavy exposure to the ailing property sectors and inadequate funding structures. The global credit crunch has also jacked up their funding costs and non-performing loans are likely to rise.

Asian banks which are dependent on domestic money and capital markets are also under stress, Moody's said, noting some depositors have been shifting their business from small and medium-sized banks to top-tier banks seen as less likely to fail, or even moving their cash to neighboring countries which offer higher levels of deposit insurance.  Continued...