Regional banks safe from US contagion
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Regional banks safe from US contagion

Asia-Pacific banks are resilient to risks related to the failures of their US peers, says Fitch Ratings, noting that regional banks have limited direct exposure to Silicon Valley Bank (SVB) and Signature Bank.

"The direct exposures among Fitch-rated banks in Asia-Pacific to SVB and Signature that we are aware of are not material to their credit profiles," the global rating agency said in a statement on Friday.

Few Fitch-rated banks in the region have depositor concentration profiles similar to SVB, which left it vulnerable to a run.

For example, Shanghai Pudong Development Bank (SPDB) has a joint venture with SVB, but its total assets only totalled 0.25% of SPDB's assets as of mid-2022. Some Japanese banks and their clients also have limited indirect exposures, but these would not be significant for their credit profiles, according to Fitch.

"We generally view securities portfolio valuation risks as manageable for Asia-Pacific banks, although exposures tend to be greatest in India and Japan," said Fitch.

In addition to market-specific structural factors, this partly reflects last year's interest rate increases in Asian markets being smaller than those in the US, a pattern expected to continue in 2023.

Weaknesses that contributed to the failure of the two US banks were considered in Fitch's rating assessments for banks in Asia-Pacific.

"But these are often offset by structural factors, such as regulation and our expectations that authorities would provide liquidity support if needed," the statement noted.

Regulators in the region also emphasise strong interest-rate risk management, led by Australia, which levies minimum requirements for non-traded interest rate risk. Many developed markets incorporate the minimum Basel liquidity rules, which smaller US banks are not subject to, Fitch explained.

The quality and persistence of deposits is an important credit consideration for bank credit ratings. This particularly applies when liquidity is tightening sharply and unrealised valuation losses on asset holdings could be realised if a deposit run forced banks to sell assets.

"Our base case is recent developments in the US will not cause major shifts in US monetary policy. If they do result in lower peak US rates or earlier US rate cuts than we expect, this could cause monetary policy in some Asia-Pacific markets to be looser than under our baseline," said Fitch.

"Generally, we believe this would be credit-negative for Asia-Pacific banks as the effect on net interest earnings would outweigh that on securities valuations, but it would aid asset quality and we would not expect meaningful effects on bank ratings."

Asian equities advanced on Friday, tracking the overnight increase on Wall Street after a rescue package for First Republic Bank fuelled a rebound in US shares. Indices rose in Hong Kong, Japan and South Korea as banking shares bounced back.

First Republic Bank, which lost two-thirds of its share value the past seven days and is down more than 65% month-to-date, said in a statement it received US$30 billion in deposits from major US peers. JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley and others are involved a rescue package for the San Francisco-based lender.

The Stock Exchange of Thailand index closed on Friday at 1,563.67 points, up 0.58%, in trade worth 73.5 billion baht.

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