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

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March 17, 2023
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A sign for the financial agency Fitch Ratings on a building at the Canary Wharf business and shopping district in London, U.K., on Thursday, March 1, 2012.

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Asia-Pacific banks are “resilient to risks” highlighted by failures seen in U.S. banking sector, Fitch Ratings said Thursday, adding the exposure to Silicon Valley Bank and Signature Bank is insignificant for regional banks the agency covers.

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

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

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

We generally view securities portfolio valuation risks as manageable for APAC banks.

Fitch Ratings

‘Sovereign support’

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

“We believe risks from valuation losses are offset by the likelihood that the authorities will provide liquidity support to banks if needed,” the agency said, pointing to regulators in Australia and Japan as examples.

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Officials in the region “emphasize strong interest-rate risk management,” including in Australia, that levies minimum requirement for non-traded interest rate risk, the analysts said, adding that Japanese banks have been reducing securities investments and duration.

“Ultimately, the creditworthiness of many Fitch-rated banks in APAC is heavily influenced by prospects for extraordinary sovereign support,” the note said.

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

Fed’s next steps

Fitch said that even if the Federal Reserve were to make earlier than expected changes to its monetary policy, such as a cut its benchmark interest rate instead of an expected rate hike, banks in the region would still not see much of an impact.

The agency highlighted that Fitch doesn’t see the latest developments leading to major shifts in U.S. monetary policy.

“If they do result in lower peak U.S. rates or earlier U.S. rate cuts than we expect, this could cause monetary policy in some APAC markets to be looser than under our baseline,” it said.

“Generally, we believe this would be credit negative for APAC banks, as the effect on net interest earnings would outweigh that on securities valuations, but it would aid asset quality and we would not expect meaningful effects on bank ratings.”