Asian banks may escape US subprime crisis
Tuesday, 7 August 2007
Raphael Minder from Hong Kong quoting Moody's latest report
ASIAN banks should be able to weather the downturn in US credit markets because of their limited exposure to the subprime mortgage market, according to Moody's, the ratings agency.
In a report, Moody's late last week said the domestic focus of Asian banks, coupled with a greater aversion to risk following the 1997 financial crisis, meant "there are currently no negative rating implications for Asia's internationally active commercial and investment banks as a result of their exposures to the US subprime sector".
Some of the region's larger banks have invested in more risky US debt instruments. But the credit rating agency said: "The bulk of foreign currency investments at these banks and at the smaller banks in Asia continue to be held in highly rated [single-A or better] government and corporate bonds."
The report comes amid heightened concerns in Australia about the knock-on effect of the US subprime collapse, following big losses at two domestic hedge funds and news last week that two high-yield funds controlled by Macquarie had run into similar difficulties because of their exposure to US corporate loans.
UBS analysts also warned recently that Japan's largest banks had an exposure of up to Y1,000bn ($8.4bn, euro6.1bn, £4.1bn) relating to their US subprime investments.
But those banks that have invested in US subprime have kept their gross positions at less than 5.0 per cent of their Tier 1 capital, according to Moody's. Meanwhile, Asian investments in other instruments such as collateralised debt obligations (CDOs), or bundled loans, have generally been limited to senior tranches.
Moody's said leveraged loans did not appear to be an issue in Asia. Concerning Japan, its report noted that the banks had been revising risk management approaches, which had already contributed to a significant winding down of risky positions at the start of 2006.
Separately, Singapore's central bank last Friday called on financial institutions to take into account their exposure to CDOs. One of Singapore's leading banks, United Overseas, had already sought to reassure investors earlier last week by saying that CDOs accounted for less than 0.3 per cent of its assets, while its rival DBS described its role in the CDO market as "immaterial".
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— FT Syndication Service
ASIAN banks should be able to weather the downturn in US credit markets because of their limited exposure to the subprime mortgage market, according to Moody's, the ratings agency.
In a report, Moody's late last week said the domestic focus of Asian banks, coupled with a greater aversion to risk following the 1997 financial crisis, meant "there are currently no negative rating implications for Asia's internationally active commercial and investment banks as a result of their exposures to the US subprime sector".
Some of the region's larger banks have invested in more risky US debt instruments. But the credit rating agency said: "The bulk of foreign currency investments at these banks and at the smaller banks in Asia continue to be held in highly rated [single-A or better] government and corporate bonds."
The report comes amid heightened concerns in Australia about the knock-on effect of the US subprime collapse, following big losses at two domestic hedge funds and news last week that two high-yield funds controlled by Macquarie had run into similar difficulties because of their exposure to US corporate loans.
UBS analysts also warned recently that Japan's largest banks had an exposure of up to Y1,000bn ($8.4bn, euro6.1bn, £4.1bn) relating to their US subprime investments.
But those banks that have invested in US subprime have kept their gross positions at less than 5.0 per cent of their Tier 1 capital, according to Moody's. Meanwhile, Asian investments in other instruments such as collateralised debt obligations (CDOs), or bundled loans, have generally been limited to senior tranches.
Moody's said leveraged loans did not appear to be an issue in Asia. Concerning Japan, its report noted that the banks had been revising risk management approaches, which had already contributed to a significant winding down of risky positions at the start of 2006.
Separately, Singapore's central bank last Friday called on financial institutions to take into account their exposure to CDOs. One of Singapore's leading banks, United Overseas, had already sought to reassure investors earlier last week by saying that CDOs accounted for less than 0.3 per cent of its assets, while its rival DBS described its role in the CDO market as "immaterial".
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— FT Syndication Service