Warning Signs Rise for Big Lenders in Asia

Despite relatively strong economic growth, risks for banks are growing in Asia. Among the risks are a big increase in lending in recent years, rising individual debt levels in the region, headwinds from the European debt crisis and a slowdown in China. Investors and analysts are watching the numbers closely, and while only a few see a big spike in bad debts, many are worried profits may be squeezed, particularly if there are more hiccups in the global economy. Bankers across Asia agree losses will rise but only modestly. "There will be a slight increase in defaults and bad debts within the region because of the cycle change," said Australia & New Zealand Banking Group Ltd.'s Chief Executive Mike Smith. Credit-rating agency Standard & Poor's says the turning point in the credit cycle will come this year after two to three years of steady loan growth. "In Asia the high growth of the economies has masked problems," said Naoko Nemoto, a credit analyst at S&P. Ms. Nemoto met with Singaporean, Chinese and Japanese banks recently that told her they expect nonperforming loans to tick higher this year. "Typically when loans are issued in a rapid manner, corners get cut," said Mike Werner, a senior analyst at Bernstein Research who expects to see a significant jump in bad loans across the region in late 2012 and early 2013. Distress is already showing—from India's cash-strapped Kingfisher Airlines Ltd., to Chinese property developer Hangzhou Glory Real Estate Co., which is in bankruptcy protection, to chipmaker Elpida Memory Inc., Japan's largest corporate failure among the nation's manufacturers since the end of World War II. Read more. (Subscription required.)