Global Economy : ‘Weak Indian banks fuel trouble for US’

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Just read the following news item. At first read it sounds difficult to comprehend. I do think that it is partly quite true – that Asian banks might find it easy to lend to the West than in their own economies – this from experience of having lived with a banker (my dad) and the struggle he had to improve the CD ratio (Credit – Deposit ratio) for Kerala.

But I don’t completely agree that the reason for this situation is the poor structure of the banks, rather its the inability of the economies to use capital. Again, Kerala offers a very good example – its very difficult for banks to find credit worthy investment opportunities in Kerala with acceptable risk levels compared to other parts of India – like Tamil Nadu, Punjab or Maharashtra. Similarly when you look

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at this from a global perspective, banks do find it difficult to have local investment opportunities at par or better than the ones in the west.

While I don’t know about the US economy, but I do think that still US companies are much better performing from an investment point of view than Asian ones. Perhaps this also might have to do with the fact that more investment in US comes from private sources rather than through the state, which is not quite so in Asia.

JULY 16: A first-ever full health check of Asian banks by Standard & Poor’s has offered revealing insight into why the US current account deficit may not unravel soon.

Out of the 27 Chinese, Indian, Thai, Indonesian, Philippine and South Korean lenders rated by S&P on its nine-point Bank Fundamental Strength Ratings scale, none could manage to score more than a humble C+.

A majority of the region’s banks ended up with D or D+. The worse the score, the higher the probability that lenders would need to seek external assistance in the event of financial distress, the rating company said in a press release.

Weak Asian banks, says Deutsche Bank AG economist Sanjeev Sanyal, are a key reason why the region will continue to run large current account surpluses — and the US a deficit — puzzling analysts who find it historically and theoretically counterintuitive that fast-growing developing economies such as China and India should lend capital to rich nations.