MANILA - SOUTHEAST Asian nations, backed by Japan, China and South Korea, have agreed to set up a multi-billion dollar fund to buy toxic debt and help the region's banks hit by the financial crisis, the Philippines president said on Wednesday.

President Gloria Macapagal Arroyo said the World Bank has committed to initially provide US$10 billion (S$14.6 billion) to the fund.

'The facility can be used to purchase what the bankers call toxic assets and recapitalise troubled financial institutions and private companies,' she said in a speech at the presidential palace in Manila.

Governments around the world have pledged around US$3.2 trillion in a variety of schemes to combat the worst global financial crisis in decades that has toppled financial institutions globally.

The crisis has provided plenty of reminders to Asia of its own financial crisis a decade ago, when currencies in several countries crashed and foreign investors fled the region.

Analysts said there was no immediate need to recapitalise banks or companies in Asia as few were exposed to the crisis in the West, although Asian financial markets have been badly hit by contagion.

Still, an emergency fund could help avert any potential crisis and could also provide a boost to confidence, they said.

'We are not forecasting a crisis scenario where governments will have to recapitalise,' said Ritesh Maheshwari, a primary credit analyst at Standard & Poor's rating agency, told Reuters in Singapore.

'There is no such pressing need in Asia yet for such a fund. But it is a good development as it will prepare Southeast Asian nations to better take care of any banking problems that may occur.'

Mrs Arroyo said the 10-member Association of South East Asian Nations (ASEAN), its so-called dialogue partners of Japan, China and South Korea, the Asian Development Bank and the International Monetary Fund could also contribute to the fund.

Plans for the fund were drawn up at the World Bank/IMF meetings in Washington last week, she said, adding that some details were still being worked out.

The World Bank and the IMF, with the help of ASEAN finance ministers and central bank governors, would draft the implementing mechanism for disbursing funds, hopefully with minimal conditions attached, she said.

'The ASEAN plus three members and the multilaterals welcomed our initiative not only in providing access to financing but also more importantly in boosting confidence in the ASEAN economies,' Mrs Arroyo said.

East Asian countries earlier this year proposed an US$80 billion currency swap agreement, expanding a much more modest agreement that was set up in the wake of the 1997/98 Asian financial crisis to protect any country facing a balance of payments crisis.

Mrs Arroyo also reiterated that the ASEAN plus 3 grouping would hold a meeting on the sidelines of the Asia-Europe summit in Beijing next week to discuss how the crisis was affecting the region.

ASEAN comprises the Philippines, Indonesia, Thailand, Malaysia, Singapore, Brunei, Vietnam, Myanmar, Cambodia and Laos. -- THOMSON REUTERS