×

Will Asian Banks Pass the Fed's Stress Test?

Some Asian banks, especially in Japan, could fail the U.S. Federal Reserve's stress test, says David Marshall, Senior Analyst Asia-Pacific Financials at CreditSights.

A bank teller counts 10,000 yen (118 USD) bank notes in Tokyo on September 22, 2010. The USD tumbled against the yen in Asia after the US Federal Reserve indicated it was prepared to take further measures to boost a faltering economic recovery. The USD fell to 84.80 yen in Tokyo morning trade, down from 85.15 yen in New York.
Yoshikazu Tsuno | AFP | Getty Images
A bank teller counts 10,000 yen (118 USD) bank notes in Tokyo on September 22, 2010. The USD tumbled against the yen in Asia after the US Federal Reserve indicated it was prepared to take further measures to boost a faltering economic recovery. The USD fell to 84.80 yen in Tokyo morning trade, down from 85.15 yen in New York.

"If you subject the Japanese banks to this kind of level of losses applied by the U.S. stress test, they would be very hard pressed to absorb the loan losses," says Marshall, adding that even South Korean and Australian banks would barely make the cut.

"If you subject those (Australian) banks to a level of losses derived from a high risk portfolio, they don't have the underlying earnings to cover those kind of losses," he said.

The Fed's latest stress test was meant to determine whether the banks have enough capital to withstand another financial crisis. 15 of the 19 largest U.S. banks that underwent the test, cleared it.

So Which Are the Healthiest Banks in Asia?

Marshall places his bets on Singapore banks as well as most Hong Kong financials, given their relatively healthy balance sheets and strong growth environment.

OCBC's Vice President for Wealth Management Singapore, Vasu Menon, also thinks Asian banks are generally in good shape. “They've good capital to buffer that sort of situation (presented in the stress test). Asia has got a lot better fundamentals than what you have up in the U.S. So if you look at Singapore banks for example, they're sitting on a very healthy capital ratio."

Menon also believes that Chinese banks will likely avert a banking crisis as Beijing is flushed with cash and can easily bail out its banks.

"I think, in the worst case scenario the Chinese government could still step in because they've got a huge amount of reserves, $3.2 trillion sitting on the sidelines. And they've done it before,” Menon said.