Imagining If Key Foreign Banks Start Reducing Their Exposure in Asia


By Anoop Singh

European banks play an important role in supplying credit to several Asian economies. What happens if they start reducing their exposure to the region?

The largest borrowers from European banks are Australia, Hong Kong SAR, Korea, Malaysia, New Zealand, Singapore, and Taiwan Province of China, while China, India, and the economies of South East Asia generally have smaller liabilities.

Among European banks, those from the United Kingdom have a particularly significant presence in Asia. For most regional economies, the nonbank private sector—businesses and households—is the main recipient of credit from foreign banks as a whole.

Prominent role

European banks play a prominent role in the areas of trade credit and specialized project financing. In several Asian economies, however, lending by local subsidiaries and branches is funded primarily by local deposits, reducing potential deleveraging pressures.

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Closer, Ever Closer


By Anoop Singh

(Version in 中文)

Here’s the good news: thanks to relatively strong fundamentals and good policies,  Asian economies have coped well with the global market turbulence of recent years. Now the bad: a major financial shock—say, of type ignited by the bankruptcy of U.S. investment bank Lehman Brothers in 2008—is likely to have a substantial impact on Asia.  The reason: Asia’s increasing financial interconnectedness.

Over the past two decades—in line with the region’s growing role in the global economy—Asia’s equity markets have become increasingly sensitive to global financial developments.   More specifically, we have discovered that equity returns in Asia generally now move in tandem with those in systemic economies.  (By systemic economies, we are talking here about those countries—such as the United States and the United Kingdom which are home to major, global, financial centers such as Wall Street and the City of London.)

How do we measure that degree of financial interconnectedness?  Or put another way, how do we measure the relationship—if any—between those Asian equity returns and the performance of systemic economies?

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