News Research May 24, 2023

How healthy is Asia’s banking system?

Will there be a spillover effect on Asian banks following the turmoil in the US banking system? Perry Kojodjojo, our emerging markets strategist, explains why he doesn't think so in our latest dbAsiaInsights video.

You can also read the full transcript of the video here: 

"The recent failure of US regional banks has raised the question on whether there could be a spillover effect into Asia’s financial system. In short, we don't think so. For four reasons. Number one, only small number of AT1 bonds issued by Asian banks will be maturing this year. It is also worth noting majority of the AT1 bonds issued by Asian banks are done by Chinese banks, and these traditionally are held by domestic Chinese institutions.

Hence, the risk of unwind is relatively low. Number two, Asian banks generally have healthy and adequate capital reserves over regulatory requirements. And in general, Asian banks capital reserves are higher than is developed peers. Number three, if we look at the financial stress level in Asia, it is generally lower than the US and its history and number 4, Asia dependent on foreign banks, borrowing has been declining and those that have borrowed generally have strong external positions and ample FX reserves. Hence, our feeling is Asia’s financial system will remain healthy, but there could be some indirect economic impact on Asia that is worth watching out for."

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