The flow-through effect of the US economic rebound on the export oriented economies of developing Asia will have a positive impact on Malaysian banks, Standard and Poor's (S&P;) said today.

In its latest report by senior banking analysts across the region, the global credit rating agency said banking systems and banks that have undertaken earnest reforms since the Asian financial crisis in 1997-1998 are the best positioned to reap the benefits of an economic upturn.

However, those which avoided making difficult choices were likely to see their banking systems continue to struggle with asset quality problems in the medium term, according to the S and P report.

Credit rating analyst Adrian Chee said: "The rejuvenation of the Malaysian government's Corporate Debt Restructuring Committee in 2001 is seeing the logjam of corporate debt restructuring start to disentangle.

"This hurdle has been a key impediment for Malaysian banks. The bottoming out of the slowdown in Malaysia's export-dependent economy is also an encouraging development for the banks' earnings prospects."

S and P recently revised its outlook on leading Malaysian bank Malayan Banking Bhd to positive from stable, based on the assessment that it has taken sufficient action to address its non-performing loans and is better poised to benefit from the local economic improvement.

Non-performing loans

However, while the banking sector outlook is generally positive, not all Malaysian banks have improved their non-performing loans with some even reporting higher ratios, Chee noted.

Bank Negara Malaysia said last month it expects banking consolidation to leave between six and eight banks from the current 10 in the country, but stressed the process would be market-driven.

Under a sweeping consolidation program, Malaysia's 54 banks merged into 10 anchor groups by Jan 1 last year.