2012-05-05 03:43:07 - Recently published research from Business Monitor International, "Taiwan Commercial Banking Report Q2 2012", is now available at Fast Market Research

Uneven Banking Risk Exposure Across Region BMI View: Amid the recent slump in global consumer and investor confidence due to economic instability in the EU and the US, the banking sectors of certain Asian countries are relatively more exposed than others. With the recent creep-up in the share of mortgage loans as a percentage of total loans amid a weakening housing sector, we regard Australian banks as the single most vulnerable group within the region. By contrast, economies such as Singapore and Hong Kong should remain financially more stable despite facing similar price instability in their respective real estate markets. The regional outlook for Asian banks have deteriorated significantly in recent months, as the yet unresolved European fiscal debt crisis

as well as sluggish US growth threatens economic growth within Asia. Moreover, there is also the significant threat of a reduction of European lending to Asian banks, because such debt makes up about 25% of total foreign lending - both in terms of trade financing and longer-term business loans - that may threaten to destabilise the balance sheets of lenders within the Asian region. In addition, we believe Asian banks will also have to contend with an abrupt slowdown in Chinese economic growth, led by a steep contraction in domestic money supply growth that should constrain lending activity and hence, overall activity within China. With the tightening of liquidity, anecdotal reports of small-to-medium sized enterprises - which have had to resort to raising funds from the shadow banking system that charges exorbitant interest rates - going bankrupt in cities such as Wenzhou are beginning to surface. From a macroeconomic perspective, the slide in real GDP growth in Q311 to 9.1% year-on-year from 9.5% in the preceding quarter, provides support to our view that the country is in its nascent stages of a prolonged slowdown (see our online service, October 17 2011, 'No Cure For The Credit Hangover This does not bode well for key trading partners, which are already facing the prospect of lower external demand from key EU and US buyers. With these factors in mind, we believe banking sectors across the region will face heightened risks to asset and loan growth, forcing overall industry expansion to slow or even turn negative. Prospect Of Property Slowdown Compounds Fears Apart from external concerns, we also highlight that certain Asian lenders will be heavily exposed to a domestic slump in property prices, where economies such as Australia, and Hong Kong having among the highest exposures, with mortgage loans making up 58.8% and 50.3% of total loans respectively (China is similarly exposed to a real estate slump as well, although indirectly, through soaring construction loans). Ominously, growth in property prices in both places have fallen significantly over the past few quarters, suggesting substantial downward pressure on loan growth for these economies in 2012, turning negative in countries including Australia and Hong Kong. Other key countries with rapidly cooling property prices include Taiwan and Singapore as their respective administrations have put in place measures to stem a runaway bubble from forming. In Taiwan, the Kuomintang-led government introduced a property tax on non-self-use properties in June, with the levy ranging between 10% and 15% depending on the assets' holding period. In Singapore, National Development Minister Khaw Boon Wan has accelerated the release of residential land supply, as well as the number of built-to-order public housing units, in order to meet rising demand. These interim measures, while detrimental to the banks' loan books in the short term, should help prevent a sharp downward shock to the financial industry over the longer term due to a more orderly unwinding of the property bubble. Keeping A Close Eye On Leverage Overall, we believe countries with a higher degree of leverage will be more vulnerable in the face of the current global slowdown. We believe risks will be the highest in the heavily leveraged economies, particularly Australia, South Korea, and Vietnam, with the loan-to-deposit ratios averaging 115.7%. By contrast, Hong Kong, Singapore and Taiwan remain far less exposed than their regional counterparts, with the ratio coming in at a mean of only 71.7%. As a result, we see far limited downside for the latter group of banks compared with the former.


Full Report Details at
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