Fitch says banks in Asia are resilient to risks seen in US bank failures

Fitch Ratings said Thursday that Asia-Pacific banks are “resilient to risks” highlighting failures seen in the US banking sector, adding exposure to Silicon Valley Bank and Signature Bank is insignificant for regional banks.

“Direct exposures between Fitch-rated banks in SVB and Signature in APAC, of ​​which we are aware, are not material to the credit profile,” Fitch said in a note.

“The weaknesses that contributed to the failure of the two banks are among the factors already considered in our ratings assessments for APAC banks, but these are often offset by structural factors,” Fitch said. ,

Fitch’s assessment on banks in the Asia-Pacific came after US Treasury Secretary Yellen said overnight that not all uninsured deposits would be protected in future bank failures.

While Fitch sees a significant risk of volatility in deposits for digital banks in the region, it noted that governments in Asia-Pacific will take steps to support their banks if needed – a prospect that will help mitigate further risks. Will help

Pointing to regulators in Australia and Japan as examples, the agency said, “We believe the risks from valuation losses are offset by the possibility that authorities will provide liquidity support to banks when needed.” Will get it done.”

Analysts said authorities in the region “emphasize strong interest-rate risk management”, including Australia, which imposes minimum requirements for non-traded interest rate exposure, adding that Japanese bank securities investments and reducing the duration.

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

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

Fitch said that even if the Federal Reserve changes its monetary policy earlier than expected, such as cutting its benchmark interest rate instead of the expected rate hike, banks in the region still won’t see much of an impact.

The agency highlighted that Fitch does not see the latest development leading to major changes in US monetary policy.

“If they result in lower extreme US rates or an earlier US rate cut than we expect, this could result in monetary policy easing in some APAC markets below our baseline,” it added.

“Generally, we believe this will be loan negative for APAC banks, as the impact on net interest income will exceed securities valuations, but it will aid asset quality and we do not expect a meaningful impact on bank ratings.” “