While banks in Asia have been rattled lately by the US subprime mortgage problems and the lingering credit crunch worldwide, Standard & Poor's said it was the ailing US economy that would hit this sector the hardest.
"It is the US economy's slowdown that could potentially deliver the significant blow," S&P said yesterday in a report.
"A majority of the rated banks in Asia are well placed to weather the storm, albeit with likely declining profitability in 2008," wrote Ritesh Maheshwari, a credit analyst at S&P. "An economic slowdown will result in asset quality deterioration for the Asian banks. Default rates are at a historical low and can only go up from here."
Banks in Pakistan, South Korea, the Philippines and Thailand are those that are relatively more vulnerable than their regional rivals given their respective "structural strengths and dependence on their economies," the report said.
Most Asian banks have improved financial profiles following economic growth in the past five years, but "whether that cushion is thick enough depends on the severity and duration of a possible US recession," Maheshwari said.
S&P estimated that total exposure of the rated Asian banks to structured instruments is about US$34 billion. It said considering that the total shareholder equity of these banks is nearly 10 times this amount, the banks can easily absorb the write-downs.
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