Asia-Pacific News

Asia Banks Exposure to Europe Crisis ‘Marginal’: Pro

Banking stocks in Asia have been under selling pressure since the beginning of August on fears of a contagion effect from Europe’s debt crisis.

But John Wadle, head of regional banks research at Mirae Asset, believes Asian lenders will not face a similar liquidity crunch as during the last financial crisis, as many now have safeguards in place.

“It's more of a sentiment issue, and we think (the banks) can cope with that, even if European banks were withdrawing their loans from Asia,” Hong Kong-based Wadle told CNBC on Monday.

Even lenders in Australia and South Korea, Wadle notes, which are regarded as the most sensitive to the European funding markets, are less vulnerable now than they were back in 2008-2009.

“Korean FX reserves are so much bigger, and Australian banks have termed out a lot of their funding,” he said.

According to recent comments by central bank officials, Australian banks have decreased their dependency on short-term wholesale funding, while increasing their share of long-term funding.

“In the worst-case scenario, if you saw the contagion spread to Italy and Spain, then there may be some direct exposures; but the direct exposures Asian banks would have to the smaller PIIGS countries of Portugal, Greece and Ireland would be very marginal, and my own view would be that that's not a real earnings risk, or valuation risk to Asian banks,” Wadle added.

European lending in Asia amounted to $353.3 billion as of the end of 2010, according to RBS.

Mirae Asset has upgraded a number of Asian banks in the past month, as the financial services firm believes valuations have already discounted a worst case for earnings in 2012-13.

Wadle cites Asia-focused lender Standard Chartered as his top pick in the sector, which he believes may actually benefit from the turmoil in Europe as loan pricing improves.

"If European banks cut loans in Asia, this will reduce the number of banks in Asia providing loans. (This places) StanChart in a position to gain market share and loan pricing will rise and help margins."

He says the U.K.-based bank is well capitalized, with $150 billion in liquid assets and a loan-to-deposit ratio below 80 percent.

“We see only 10 percent downside to the (bank’s) earnings in 2012-13 assuming a deep European recession,” Wadle said.

Standard Chartered’s stock is trading at a price-to-earnings ratio of 10.6 times current earnings and offers a return on equity of 11.3 percent, according to Reuters.