StanChart: China, SG, Korea, and HK Most Vulnerable To EU Banks Cutbacks28 October, 2011, 21:35. Posted by Zarathustra
Tags: Banks, European, Financial
The thing about the debt crisis is that while Europe looks dangerous, when institutions with Euro-denominated debt and need to deleverage, and when European banks are trying to raise capital by selling assets elsewhere (to raise capital by reducing RWA), that creates a shortage in the Euro. That was what happened with the US post-Lehman, and probably for this reason, the Euro has been holding up well as the European Central Bank isn’t doing anything to ease the tightness in Euro. So while some blokes in Hong Kong once wishfully believed that uncertain situation in the developed world would prompt money going into Asia, the reality is actually going to be the exact opposite to what they would like to see.
Standard Chartered has a new note coming out which estimated that in the event of European banks cutting back from Asia businesses in order to raise capital, China, Singapore, Korea and Hong Kong would be the most vulnerable to EU banks cutting back. Tan Hui of Standard Chartered wrote that “Continental European (ex-UK) banks were responsible for 21% of international bank loans outstanding in Asia in Q2-2011.” And while UK, US and Japanese banks lending in the region continued to grow, “lending to the region by French and German banks contracted. Continental European banks‟ lending to Asia has yet to return to its pre-2008 peak.”
Tan Hui added that China, Singapore, South Korea and Hong Kong borrow the most from EU ex-UK banks according to BIS data, thus as these EU ex-UK banks have to raise capital and might cutback from Asia, these countries/regions could be the most vulnerable.
Source: Standard Chartered
To put a positive spin here, Tan Hui also believes that if the banking stress could be contained within Europe, UK, US, Japanese and banks from other countries should be able to offset the cutback in EU ex-UK banks lending. Of course, that could well be too optimistic to assume that the European mess would not spread elsewhere.