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Asian banks to weather European contagion: Moody's

Asian banks are likely to weather any fallout from Europe's financial problems because they have limited direct exposure to the region, credit ratings firm Moody's said on Tuesday.

india Updated: Jun 22, 2010 16:17 IST

Asian banks are likely to weather any fallout from Europe's financial problems because they have limited direct exposure to the region, credit ratings firm Moody's said on Tuesday.

However, it warned that banks in Australia, New Zealand and South Korea that rely on the international capital markets for a substantial portion of their funds could be affected if the turmoil causes another global credit crunch.

"The dependency in this region is probably more from China than Europe," said Deborah Schuler, a senior vice president who oversees ratings in Asia, the Middle East and Africa.

"In the case of Europe specifically... (Asian) banks have very little exposure to European sovereigns or European banks," she told a media briefing in Singapore.

Speaking after the briefing, Schuler said Asian banks would suffer "second round effects" as exports to Europe slow down, although the impact will be limited.

"They're not sitting on a lot of direct exposure. They have some trade exposure, routine business, but they are not sitting on lots of European bank assets or sovereign assets," she said.

"There's good business to do in Asia and Asian banks tend to stick to that." Moody's said the main concern would be if the problems in Greece and other European countries such as Spain and Portugal spark another round of global risk aversion, which would lead to an international credit crunch.

"We do have banks in Australia, New Zealand and (South) Korea who do depend on the global capital markets to fund a portion of their loan book," said Schuler.

But for the rest of Asia, banks are supported solidly by deposits from businesses and savings-conscious individuals.

Just as global economies were recovering from a global economic crisis and credit crunch sparked by problems in the US housing market, financial troubles in Europe raised concerns of another meltdown.

Greece, faced with a ballooning deficit, required a multi-billion euro bailout from the European Union and the International Monetary Fund.