Excessive lending, diminishing opportunities for global funding, and deflating asset prices are increasing pressures on loan quality at banks in the United States and in 15 other countries, according to Standard & Poor's.
In a report issued this week, the rating agency said that though banking systems in the United States, Chile, Egypt, Greece, Israel, Lebanon, Panama, Singapore, and Taiwan are "apparently robust," they are increasingly vulnerable to an economic downturn.
"Leading indicators continue to signal worrisome trends," Standard & Poor's noted in its report. "Some of these systems' fundamentals are so poor that half of their assets may become problematic."
For other systems, it added, "the decline will be relatively mild."
Standard and Poor's said that banking systems in Russia and Pakistan have become "dysfunctional" and that Ukraine is heading in the same direction because of acute asset/liability mismatches.
Elsewhere, the potential for asset problems is highest in China, the Slovak Republic, Egypt, the Czech Republic, Indonesia, and Thailand, where 35% to 70% of bank loans could be at risk. In Japan, the report said, 15% to 30% of loans are at risk.
Risk is lowest in the United States, where 5% to 15% of all loans could become problematic, and moderate in Singapore, Israel, Chile, Taiwan, and Hong Kong, where 10% to 20% of all loans could run into problems.
The United States, the credit agency noted, is a "prime example" of how "mature markets have also shown strong loan growth in recent years that likely will result in deteriorating asset quality in the future."
Domestic U.S. credit, Standard & Poor's added, increased to 117% of gross domestic product at yearend 1997, up from 93% in 1994. Of particular concern in the United States are loans to real estate investment trusts, high-yield loans, and subprime consumer credits.
Standard & Poor's added, however, that it did not expect problems to surface in the United States until "the economy or particular sectors begin to soften over the next few years."