CNA – Lenders in the Asia Pacific region are likely to see a limited impact of United States (US) bank failures due to their stable funding sources and ample liquidity, Moody’s Investors Service said yesterday.
Banks in the region, including China, Japan, Taiwan, India, Korea, and Singapore, among others are “mostly funded with customer deposits, while their market borrowings are modest at about 16 per cent of their total assets on average,” the global ratings agency said in a note.
“Their business depositors are well diversified across different sectors, with no rated bank in the region being heavily exposed to technology companies.”
US state regulators closed New York-based Signature Bank on Sunday, the third largest failure in the country’s banking history, two days after authorities shuttered Silicon Valley Bank, following mass withdrawals of customer deposits.
The closures have sent shockwaves across global markets, fanning fears of global contagion.
Most banks in the region are subject to liquidity coverage ratio (LCR) requirements aimed at ensuring banks hold ample high-quality liquid assets to backstop stressed funding conditions that could trigger a run or their deposits , the ratings agency said.
Further, most APAC banks do not have substantial held-to-maturity (HTM) investments, securities that banks purchase and intend to hold until the end of tenure, Moody’s noted.
Typically, bonds are the most common form of HTM investments. The fair value losses on HTM securities would be “modest” for most of these APAC banks, even in unlikely scenarios when lenders need to sell parts of this portfolio because increases in interest rates in APAC have been less significant and less rapid compared to those in the US, it added.
The ratings agency estimates that if Indian banks mark their HTM investments to market, they would incur losses of five to 10 per cent of the par value of the bonds, or 12-25 per cent of their common equity tier 1 capital.
