Asian Banks Too Timid To Lend - Companies Too Afraid To Borrow

Banks in Catch-22 - need to resume lending to stimulate economic revival

Bangkok (United Nations Information Services) --Banks are afraid to lend, companies are reluctant to borrow, and the region's monetary authorities have given little or no indication how they will solve this credit crunch, according to a new comprehensive joint-study published today by the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) and the Asian Development Bank (ADB).

As a result, economic growth is likely to remain muted across much of the region, states
"Rejuvenating Bank Finance For Development in Asia and the Pacific."

The problem of non-performing loans, which reached record numbers following the Asian financial crisis of 1997, has undermined the solvency of the banking systems in many countries.

Still, the study reports that most countries are presently experiencing "ample liquidity with low and declining interest rates," but there exists a shortage of "creditworthy" corporate borrowers.

The impact of this current reluctance to lend or borrow could have an even more negative effect on the region's economy. Unless these banks resume lending they will continue to be trapped in a Catch-22 situation.

"Until banks regain their ability and willingness to lend and become less risk averse, the pace of economic growth is likely to remain muted as many less creditworthy customers will be avoided by the banks," said Mr. Kim Hak-Su, United Nations Under-Secretary General and Executive Secretary of UNESCAP.

"Without a strong banking sector growth can be adversely affected and public confidence, the lifeblood of all modern economies, gravely undermined," Mr. Kim said at the opening of a Round-table Discussion on the Asian Banking Sector and launch of the publication.

"Rejuvenating Bank Finance For Development in Asia and the Pacific," reports there is a lack of clarity across the region when it comes to tackling the problem. "The so-called 'credit crunch' has been much discussed over the last few years with little, or no, indication as to what monetary authorities might do to overcome it."

The publication looks at domestic finance for development in five Asian countries: Bangladesh, Korea, Malaysia, Philippines and Thailand. It also studies Banking Sector Reforms in India and the People's Republic of China.

In addition, a strong case is made for a renewed emphasis on micro-financing as an effective tool in assisting the poor, especially poor women. The study credits micro-financing as having triggered a process toward broadening and deepening of rural financial markets in Asian and Pacific countries.

For further information please contact:

Mr. David Lazarus
Chief, United Nations Information Services
UN Building, Rajadamnern Nok Avenue
Bangkok, 10200, Thailand

Tel: (+66) 02 288 1864-9
E-mail: unisbkk.unescap@un.org

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