Hong Kong: Asian banks, domestically focused and risk averse after the Asia crisis, should see few losses from the U.S. subprime meltdown, rating agencies said, but investors worry lenders could get caught in the maelstrom.
Ratings agency Moody’s Investors Service said on Friday that the impact of the subprime meltdown on Asia’s lenders would be limited, with the largest exposure among the biggest banks through holdings of mortgage-backed securities and collateralised debt obligations.
Standard & Poor’s said Japanese banks have about $8 billion of subprime-related securities, according to the Japanese Bankers Association, while a small number of financial services firms in Taiwan have a much smaller combined level of exposure.
For almost all rated banks and insurers in Asia Pacific, subprime mortgage-related losses are likely to be “either minimal or manageable,” S&P said.
“Asian banks are not lending directly to U.S. subprime borrowers,” said Moody’s analyst Deborah Schuler.
Still, investors in regional financial stocks remain nervous as bad news from the U.S. subprime crisis and a resulting credit crunch roil global markets.
Shares in Bank of China fell as much as 2.26% on Friday, lagging the market, a day after Goldman Sachs warned in a note that the country’s second-largest lender may hold subprime mortgage-backed securities in its US portfolio.
On Thursday, Taiwan financial stocks fell to their lowest level in almost seven weeks after mid-sized Taiwan Life Insurance said it had booked a T$428 million (US$13 million) loss after writing off its entire investment in a collapsed hedge fund managed by Bear Stearns Cos. Inc.
Analysts expect more banks to come out of the closet and disclose their levels of subprime-related problems when they report earnings.
In general, Asian financial institutions tend to be locally-focused and conservative after the harsh lessons of the Asian financial crisis of 1997-98.
Lenders in the region favour plain-vanilla investment grade bonds, often under the strict guidance of regulators. Robust growth in countries such as China and India means banks don’t need to look abroad for growth.
Asia, for example, accounts for less than 10% of the market in CDOs, according to Royal Bank of Scotland. Moody’s said much of that exposure is in the highest-rated tranches.
Only a handful of Asian financial institutions have reported ill-effects of the U.S. subprime mortgage crisis.
In the highest-profile case, Australia’s Macquarie Bank warned on Wednesday that retail investors faced losses of up to 25% in two of its investment funds amid the fallout from the U.S. subprime crisis.
The disclosure, the third in as many weeks by an Australian fund manager, sent shares in the country’s top investment bank skidding by 10%.
Last week, top Japanese brokerage Nomura Holdings said it may pull out of the U.S. mortgage market and booked a 34.3 billion yen (US$288 million) pretax loss at its U.S. unit.
For its part, Bank of China downplayed concerns about its exposure.
“We have large investments in the U.S., but the proportion of CDOs in terms of total investment is small. The U.S. sub-prime problem will not affect our first-half result,” said Bank of China spokesman Wang Zhaowen.
UBS said in a research report that stringent regulatory rules prevent mainland Chinese banks from investing in non-investment grade debt securities.
“Nevertheless, we think there could be negative near-term sentiment arising from this uncertainty, before possible interim disclosures are made,” UBS analysts wrote in a research note.
(Additional reporting by Zhou Xin in Beijing, Michael Smith in Sydney, and Kennix Chim in Hong Kong)