Fitch Sees Limited Impact On Asian Banks From Sub-Prime Exposure

Source : The Business Times, August 22, 2007

HONG KONG - Fitch Ratings said on Wednesday most of the Asian banks have a low direct exposure to US sub-prime-backed securities as they only amount to just a few per cent of the investing bank's equity capital.

'Losses on such investments will put a dent in annual earnings but do not pose a systemic risk as they are not a serious threat to the soundness of the banks we have surveyed,' said David Marshall, head of Fitch's Financial Institutions Group in Asia.

Banks in Japan and Australia sponsor and provide liquidity facilities to conduits but the key issue is the need for them to provide liquidity, rather than adding materially to their sub-prime exposures, he said.

The ratings agency said it expects the banks to be able to meet these commitments given the modest size of the conduits relative to their own balance sheets.

Given the volatility in credit markets though, there are risks to Asian banks beyond their sub-prime exposures, Fitch said.

They may have to book accounting losses on marking to market other structured products, whose market values may be depressed by poor market sentiment and low liquidity.

However, if they continue to hold the securities, these accounting losses should eventually be reversed.

It added the banks should incur significant economic losses only if there is a material change in the default and loss rates on asset classes, other than on securities backed by US sub-prime mortgage exposures. -- AFP