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'Banks benefiting from economy'

Indian and Indonesian banks are benefiting from “favourable economic conditions,” Standard and Poor's said, with Indian lenders having improved credit quality over the past few years. Non-performing loans at Indian banks fell to 5.3 per cent of total loans in March 2005 from 10.4 per cent three years earlier, S and P said in a statement, addding that banks' average loan-loss reserve cover is in excess of 50 per cent.

While S and P predicted the Indian economy will expand 7 per cent in fiscal 2006, banks may face lower or no treasury profits because of rising interest rates.

“Banks' fiixed income investments will decrease in market value if interest rates climb,'' it said.

Banks also have to grapple with a “fragmented industry” that is in need of consolidation, the rating agency said, noting that while the government is encouraging banks to combine, “the process is expected to be time-consuming and challenging.”

Indian, Taiwanese, Malaysian and Thai lenders are meanwhile showing progress in preparation for the implementation of new capital adequacy standards under the Basel II framework, the agency said.

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