S&P keeps Indian banks out of rating revision

Rating agency Standard & Poor's (S&P) today raised the rating for 18 Asian banks on the expectation of respective national governments support to important banks.

However, it did not revise rating for Indian banks owing to the weak fiscal condition of the Indian government.

The counterparty credit ratings on banks in Indonesia, India, and the Philippines have not been revised as fiscal position of the governments in the three countries is not as strong as the governments in other Asian countries, S&P said in a statement.

Despite this, S&P said it recognises the willingness of the governments of three countries to support key banks in their systems may be no less than those of other Asian governments.

S&P raised its counterparty credit ratings and issue credit ratings on 18 banks in Korea, Malaysia, Taiwan, and Thailand.

The government support reflects specific actions taken to rescue distressed private sector banks.

The improved regulatory and legal framework, and a demonstrated government policy orientation to supporting the sector reinforces expectation that governments are likely to provide support to systematically important banks.

During last decade, especially after financial crisis in 1997-98, various Asian governments had intervened to prevent bank failures. They have extended over $500 billion support to domestic banks in their jurisdiction.

China's government extended the most in absolute terms, followed by Japan, Indonesia, Korea, Thailand, Malaysia, Taiwan, and India. In most of Asia, the banking system is the predominant means of intermediation between savings and capital investment.

Banking systems role as repository of deposits, particularly retail deposits, perhaps induces governments to support the banking system more than they might do in systems where developed capital markets exist.

The potential cost of supporting distressed banks will be treated as liability of a government when S&P determines its credit ratings on sovereigns.