The banking systems in the region are now in better placed to weather possible stresses similar to the financial crisis that hit Asia in 1997, says a new report from Standard & Poor's Ratings Services.

According to the report, Asia 1997Retrospective: Repeat Of 1997 Crisis Unlikely, But High Leverage A Worry, key factors that set the scene for the crisis are no longer as prevalent now as they were in 1997.

"Unlike the situation in 1997, Asian companies now have lower foreign currency debt exposure or hedging policies against foreign exchange risk, and sovereigns have bolstered their external positions with stronger reserves," said Standard & Poor's credit analyst Terry Chan.

"Nevertheless, the overall increase in the debt of sovereigns and, to a lesser extent, corporates remains a concern," Chan adds.

The report examines nine systemic risk factors in 2005, including banking system structures, government debt and international reserves, and offers a comparison with the situation in 1996. The study covers 10 Asian financial systems — China, Hong Kong, Indonesia, India, Korea, Malaysia, the Philippines, Singapore, Taiwan, and Thailand.

Asia's banking systems have strengthened since 1997, although some have yet to regain their full pre-crisis credit strength, says the second of the three reports, titled, Asia 1997 Retrospective: Today's Banks Likely To Survive Stress Scenarios.

According to Standard & Poor's credit analyst Adrian Chee, "There is more governance, improved asset quality, and some consolidation in Asia's banking systems, and these are now better equipped to withstand potential crises."

"Nevertheless, our stress testing indicates that systems with low interest rates, significant net exports to GDP and high exposure to an Avian flu outbreak, are the most vulnerable to sharp rises in non performing assets in times of crises," adds Chee.

The third report, Credit FAQ: Asia 1997Retrospective discusses the drivers behind the 1997crisis.