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Ratings Safe Despite Virus Attack

Source: Shanghai Daily, April 16 2003

The recent outbreak of severe acute respiratory syndrome is unlikely to have an immediate impact on the credit ratings of banks and insurance companies in China and Southeast Asia, according to a report released by the Standard & Poor's Ratings Services. "We consider the immediate impact of SARS to be relatively low on the majority of credits. But if, over the course of the next few months, the syndrome continues to deter travel and consumption, more wide spread negative effect is possible," said Paul Coughlin, managing director of Standard & Poor's Corporate and Government Ratings Group in Asia.

He added although there might be some short-term pressure on financial performance of banks and on the business growth of insurance companies operating in the region's worst-affected economies, "We will not simply change our ratings.  "SARS is likely to pressure the financial performance of banks in the region's worst-affected economies, particularly Hong Kong, by subduing business and increasing the risk of loan defaults.  In China and Southeast Asia, businesses in the travel, tourism, hospitality and retail industries are facing reduced sales and the reduction is squeezing cash flow with negative follow-on consequences for banks' loan performances, the report said.  

Banking officials in Shanghai said yesterday that their operations had not been influenced by the virus.  Meanwhile, the rating company said that SARS is unlikely to hurt insurers as most existing policies do not cover illness or death caused by the virus.  "It is quite hard for life insurers to compensate for SARS-related illness or death at the current stage as there are no precedent," said an official with the Shanghai branch of AIA Co Ltd, who declined to be identified.