Conclusions

Asia has entered the global crisis in good economic and financial shape. The banking system is sound, corporations are far more robust than in other regions, and government finances are solid. This, coupled with generally high reserves, makes Asia financially wellpositioned to recover quickly. It is reasonable to conclude that, in the long run, Asia will continue to be the fastest-growing region in the global economy.

Nevertheless, the short-term outlook of the Asian banking systems is negative. Over the next 12–18 months, banks will face traditional credit risks from the economic downturn, resulting in an increase in nonperforming loans, provisions, a decline in earnings, and losses. In this context, current allowances for loan losses and Tier 1 capital levels are not adequate to deal with the prospective credit problems. The region's banking systems are well advised to raise additional funding to offset bad-loan losses and raise Tier 1 ratios. Surprisingly, some lowincome countries—in particular, the Philippines and Thailand—and their banks are better able to cope with the stress than many higher-income countries.

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