Turmoil roiling top-flight banks in the West could yet hit major Asian lenders and the region's regulators and central banks must coordinate actions to preserve stability, the Asian Development Bank warned on Thursday.
"Even if subprime-related losses have to date been lower than elsewhere, this is no guarantee recent events will not affect major Asian financial institutions,'' Haruhiko Kuroda, the president of the ADB, told an audience of bankers, regulators and academics in Manila.
"We still need to assess the spillover from this week's events on our region's financial institutions,'' he said at the opening speech of a conference on the subprime-mortgage crisis.
Fears of mounting credit losses have fueled panic selling on world stock markets this week and in a matter of days forced the US banking landscape into its most dramatic transformation since the Great Depression.
The collapse of investment bank Lehman Brothers and the $US85 billion ($107 billion) US government bailout of insurer AIG this week have knocked Asian banking stocks and prompted central banks to pump billions into strained money markets.
Commercial lenders in the region have seen their shares caught up in the downdraft, but they have largely dodged the huge credit losses that have rocked Wall Street.
While the region has ample liquidity, Kuroda warned that several asset markets, particularly real estate, were potentially vulnerable to shocks and that big differences in the development of financial systems among Asian economies was a cause for concern.
To prevent the turbulence spreading to Asia, Kuroda said regulatory developments should be coordinated, financial market infrastructure strengthened and national markets exposed to greater competition.
"This week's turbulence only underlines the urgent need for central banks and regulators to assess the underlying problems and build a cogent and proactive plan of action to better preserve regional financial stability,'' he said.
"We need to establish best practices for handling liquidity shortages or ensuring effective financial sector safety nets. Also, existing arrangements need to be more flexible to resolve weak assets "on'' or "off'' financial institutions' balance sheets.''
Japan and Australia pumped further $21 billion into money markets on Thursday to prevent banks from hoarding cash amid a global crisis of confidence sparked by the dramatic Wall Street shake-up.
Earlier this week, the ADB warned that the financial convulsions in the West could hurt growth in Asia. The lender forecast developing economies in the region would grow by 7.5% this year, the slowest growth in the region since 2003.
Debt rating agency Standard & Poor's said on Thursday the direct exposures of many rated banks in Asia ex-Japan to Lehman Brothers are not expected to be significant enough to materially damage their credit profiles. But it added that problems in broader global markets and specifically at Western banks would still put Asian banks under stress.
"We continue to believe that the risk to Asian banks is more from the impending economic slowdown and market turmoil than from direct exposure to the distressed US financial institutions,'' S&P credit analyst Ritesh Maheshwari said in a news release.
Reuters
