REPORT:  CHINA-ASEAN TRADE  SURGES 23 PER CENT IN 2005

SHANGHAI, January 19, 2006
 (STAR) (AP) Trade between China and the 10-member Association of Southeast Asian Nations rose 23 percent over a year earlier to US$130.4 billion in 2005, state media reported Wednesday, citing a top Commerce Ministry official.

Yi Xiaozhun, a Chinese commerce vice minister, said tariff reductions on about 7,000 categories of goods followed the initiation last July of work toward a Sino-ASEAN free trade zone, the official Xinhua News Agency reported.

"China and ASEAN have entered a new stage in terms of economic cooperation and trade ties," Yi was cited as telling a regional meeting in the southwestern city of Kunming.

ASEAN comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

The countries signed an accord with China in 2004 to create the world's biggest free trade area of 1.8 billion people by 2010, and are pursuing similar deals with India, Japan, South Korea, Australia and New Zealand.

The meeting in Kunming of officials from countries in the "Greater Mekong Subregion" was focused on promoting closer economic ties.

In addition to China, the group includes Vietnam, Laos, Myanmar, Thailand and Cambodia. Trade between China and those countries totaled about US$32 billion last year, the report said without giving comparative figures.

S&P’s maintains ‘stable’ outlook for RP banking system spacer

Manila, January 19, 2006 (BULLETIN)  International credit rating agency Standard and Poor’s said yesterday it is keeping its stable outlook on the banking sector in the Philippines while noting that its risk profile remains high.

The stable outlook takes note that "the growth in non-performing assets (NPAs) has not only been arrested but also reversed" to 9.3 percent of gross loans in June, from 13.6 percent in the previous year, the US-based agency said in a regional report.

While noting that the ratio remained high by international standards, it also acknowledged the banks’ efforts to improve asset quality. It said the Philippine banking system has been successful in disposing its bad assets and cleaning its portofolio of loans.

"The growth in non-performing assets has not only been arrested but also reversed," S&P said in its latest report on Philippine banks.

"Nevertheless, the industry’s risk profile remains high, reflecting a weak operating environment. Although profitability improved in 2005, this was due mainly to trading gains from treasury activities, predominantly from the sale of high-yielding government securities," the report stated.

Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. said he expects the industry’s NPA disposal will improve this year, which would also further bring down non-performing loans ratio to around seven percent. At the moment NPL ratio is around the 8-9 percent level.

Tetangco recently hosted his first Bankers Night gathering as central bank chief at the BSP grounds. His outlook for the banking industry is better, especially if Congress finally pass the bill extending the Special Purpose Vehicle or SPV law.

"We are pushing for this to allow banks some leeway in ridding their books of soured assets, which impair their capital base," Tetangco said. The first SPV law, which expired April last year, helped the industry unload some P98 billion NPAs.

In the S&P report, it listed the positive factors why they are maintaining their stable outlook for the local banking sector. These are:

Asset quality improvements. As demonstrated by the decline in the ratio of regulatory NPLs to gross loans to 9.3 percent in June 2005, from 13.6 percent in June 2004. However, the ratio is still high by international standards. The loan loss coverage ratio, while still low, has increased to 36.6 percent from 30.9 percent. The improvement in asset quality is attributed to banks’ efforts to reduce their NPAs.

Deposits have remained fairly stable for the past three years, although they have been subject to sudden withdrawals in the past. They continue to be the system’s main source of funding, with about twothirds consisting of lowcost demand deposits and savings accounts.

In the meantime, S&P also reported that there are challenges that remain, which are currently contributing to the sector’s negative aspects.

For one, S&P said the industry remains fragmented despite incentives from the central bank to encourage consolidation. "The existence of numerous small, financially weak and undercapitalized financial institutions undermines the sector’s viability and growth prospects," it added.

Banks also continue to be dependent on trading gains, with their investment portfolio accounting for 31.7 percent of total assets in June 2005 (from 31 percent in 2004).

"The dependence reflects limited lending opportunities because many companies with good credit quality have minimal borrowing programs," the report said. Although growth in the net investment portfolio eased to 22.8 percent in June 2005, from 28.4 percent in 2004, it is still significantly higher than the net loan portfolio’s growth of 8.5 percent in June 2005 and 6.6 percent in 2004, said S&P.

"The continued dependence on trading gains renders the banks’ revenues more vulnerable to interest-rate volatility," it added.

In the meantime, S&P said banks’ capitalization remains weak, despite improvements during the past two years. "(While) several banks have raised their Tier 2 capital, they are still unable to absorb the expected huge discounts resulting from asset disposals. Hence, the central bank has permitted the staggered recognition of loss provisions overten years."


Chief News Editor: Sol Jose Vanzi

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