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Asia-Pacific lenders can deal with US, euro banking turmoil — S&P

April 20, 2023By BusinessWorld

FINANCIAL INSTITUTIONS in the Asia-Pacific (APAC) region can withstand secondary effects from the volatility in the global banking sector, S&P Global Ratings said in a report.

S&P Global Ratings in a report dated April 19 said that banks in the region can mitigate the “knock-on effects” caused by the banking sector turmoil in the United States and Europe last month. 

“Of the about 380 banks and nonbank financial institutions that we rate in the region, we anticipate no rating actions directly related to the Silicon Valley Bank (SVB) collapse. Direct exposures remain negligible,” S&P said. 

“We remain cautious, however, as previous banking crises indicate that the effects of banking sector contagion effects can take some time to fully play out,” it said.

The credit watcher noted that the Asian financial crisis of 1997 took months after the bankruptcy of Finance One, the largest finance company in Thailand during that time.

It also said the Lehman Brothers bankruptcy and the global financial crisis happened six months after Bear Stearns was sold to JPMorgan in 2008.

For the current crisis, secondary effects appear to be manageable for Asia-Pacific banks, S&P Global Ratings said.

“These effects include, but are not limited to, increasing risk aversion by investors. This ultimately is manifesting in higher funding costs for banks. Furthermore, additional Tier 1 issuance in coming months is likely to be more costly, and for some will be outright difficult,” S&P said.

Funding strength
Funding has also been a strength across banking jurisdictions in the region, the credit watcher said. The industry’s funding in 10 of the 18 banking systems in the region has either very low or low risk ratings.

“Furthermore, we cannot identify a rated bank in Asia-Pacific that has a very similar deposit base to SVB. SVB serviced a corporate client base centered in the tech, health, and life sciences sectors; its customer base was highly concentrated in commercial deposits,” S&P said.

A significant proportion of total deposits in Asia-Pacific banks are mostly deposits from domestic households, the debt watcher said.

Liquidity levels are also ranked “adequate” across the top 60 banks in the region, S&P added. 

“Certain macro and sector-wide funding and liquidity indicators underpin our view that banks in Asia-Pacific should stay relatively resilient if contagion effects amplify,” it said. 

“A significant escalation and acceleration of contagion effects including an erosion of confidence well beyond US regional banks or in the aftermath of the Credit Suisse takeover by UBS would undoubtedly contribute to negative ratings sentiment,” S&P added.

Still, the credit watcher maintained its “cautiously optimistic” growth outlook for Asia-Pacific this year, mainly driven by China’s reopening.

“For other economies, a stronger China will soften but not offset the hit of slower growth in the US and Europe, the fading boost of domestic re-opening post the pandemic, and higher interest rates,” the debt watcher said.

S&P expects the Asia-Pacific region to grow by 4.6% this year and 4.7% in 2024, it earlier said.

Meanwhile, S&P sees the Philippine economy expanding by 5.8% this year, slower than the government’s 6-7% growth target as well as the 7.6% recorded in 2022. — By Keisha B. Ta-asan

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