Precautionary measures should help Asian banks weather stormy markets
As the global economic recession intensifies, banks in Asia are well-positioned to weather increasingly negative credit trends.
By Richard Lung
Prior to the onset of the crisis, Asian banks raised substantial amounts of capital and, in addition, accumulated savings from their healthy earnings which has provided an additional cushion. These buffers remain largely in place as their relatively low exposure to structured credit products led to, if not limited, the manageable depletion of capital over the past year. While global cross-border capital markets may be closed, a number of banks have continued to raise additional capital locally, although at higher costs. Moreover, strong regional economic growth has seen asset quality in most systems improving to levels at, or even significantly better than, where they had been prior to the past regional crisis of the late 1990s. Outside of Korea, Australia and New Zealand, banks in most other systems are predominantly deposit funded and face little funding pressure.
Nevertheless, strains have emerged which are elevating bank credit risk in Asia. Confidence since September in, and between, financial institutions has been clearly shaken as evidenced by the periodic local money markets seizures and elevated credit spreads.