SVB and Asian banks

CHINA ADVISORY - Report 13 Mar 2023 by Andrew Collier

Generally, contagion risk from the Silicon Valley Bank situation is minimal—apart from the issue of “animal spirits…”
What are the risks that could affect Asian banks?

* Excessive concentration of digital assets in the banking system. However, most digital start-ups obtain funding from venture capital funds and other financial intermediaries—not banks. So the risk is minimal.
* Liquidity mismatch. This is unlikely because most Asian banks have a diversified deposit base from individuals, institutions and small business, and don’t rely on one illiquid group of depositors. Meanwhile, about 90% of their deposits are loaned out to corporations, and wouldn’t be affected by the interest rate squeeze that hurt the balance sheet of Silicon Valley Bank when its bonds lost value as interest rates rose.
* Tighter macroeconomic conditions. The biggest risk is that a growing financial crisis in the U.S. leads to even tighter monetary conditions, with higher interest rates and lower lending. This could make it harder for Asian corporations to borrow money, particularly those in the high-tech sector, which is now under a microscope because of SVP and the FTX crypto exchange collapse.

None of these issues are causes for concern unless the situation in the U.S. escalates.

Now read on...

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