Moody's Profiles Likely Victims of Y2K Bug

has issued a report raising concerns about the ability of some small banks to deal with disruptions arising from the Y2K computer bug.

The agency said banks with international exposure or those that lack a strong technology culture are likely to run into difficulties.

"Some banks in developing markets (including several public-sector institutions) that confront potentially material counterparty and operational risks, and where remediation and testing have had a late start" could have problems, the rating agency said.

Moody's noted that a bank's credit rating should mirror the degree of its Y2K readiness.

"Most banks involved in the Y2K compliance process will meet the new millennium with IT systems and networks in better shape than they would be otherwise," said Sam Theodore, one of the report's authors.

"The Y2K threat has also strengthened the dialogue and cooperation among bank regulators worldwide," he added. "The process should lead to further exchanges beneficial for various banking systems, especially those in developing economies."

Moody's said it has not taken any rating actions on a bank based solely on a perceived Y2K risk, though it has identified institutions about which it had Y2K-related concerns.

Moody's has decided to treat Y2K-related payment delays as technical rather than credit events and will not change ratings solely because of a one-time delay, the agency said.

"We expect incidents that prevent a bank from making a repayment on time to occur in the new year," Mr. Theodore said. "Our response will be to question whether the incident, if it remains temporary, genuinely represents a higher degree of credit risk. The answer is probably negative, and therefore we are unlikely to change the rating in response."

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