Fitch says banks in Asia are resilient to risks seen in U.S. bank failures

Fitch says banks in Asia are resilient to risks seen in U.S. bank failures

A sign for the finance agency Fitch Ratings on a building in the Canary Wharf business and shopping district in London, United Kingdom, on Thursday March 1, 2012.

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Asia-Pacific banks are “risk-resilient,” highlighted by defaults in the U.S. banking sector, Fitch Ratings said on Thursday, adding that exposure to Silicon Valley Bank and Signature Bank is insignificant for the regional banks covered by the agency may be.

“The direct exposures of Fitch-rated banks in APAC to SVB and Signature that we are aware of are not material to the credit profiles,” Fitch said in a statement.

“Weaknesses that contributed to the failure of the two banks are among the factors already factored into our ratings for APAC banks, but these are often offset by structural factors,” Fitch said, adding that the exposures tend to be largest in India and Japan.

Fitch’s assessment of Asia-Pacific banks comes as US Treasury Secretary Yellen said overnight that not all uninsured deposits will be protected in future bank failures.

In general, we consider the valuation risks of securities portfolios for APAC banks to be manageable.

“Government Support”

While Fitch sees significant risk of volatility in digital bank deposits in the region, it noted that Asia-Pacific governments are likely to step in to support their banks when needed — a possibility that will help mitigate further risk reduce.

“We believe the risk of valuation losses is offset by the likelihood that authorities will provide liquidity support to banks when needed,” the agency said, citing regulators in Australia and Japan as examples.

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Officials in the region “emphasise strong interest rate risk management,” including in Australia, which imposes a minimum requirement for untraded interest rate risk, the analysts said, adding that Japanese banks have reduced asset allocation and duration.

“Ultimately, the creditworthiness of many Fitch-rated banks in APAC is heavily impacted by the prospect of exceptional government support,” the statement said.

“We generally view the valuation risks of securities portfolios for APAC banks as manageable,” Fitch said.

The Fed’s Next Steps

Fitch said even if the Federal Reserve made changes to its monetary policy sooner than expected, such as B. a cut in their policy rate instead of an expected rate hike, the banks in the region would still not see much of an impact.

The agency stressed that Fitch does not believe the latest developments will result in major shifts in US monetary policy.

“If they result in lower US interest rates or earlier US interest rate cuts than expected, it could result in some APAC markets becoming looser than below our baseline,” it said.

“In general, we believe this would have adverse credit ratings for APAC banks as the impact on net interest income would outweigh that on security valuations, but it would improve asset quality and we would not expect a significant impact on bank ratings.”