Asia Banks Dodge the Wall Street Crisis

Despite rumors to the contrary, most Asian banks are in good shape thanks to minimal exposure to Fannie Mae, Freddie Mac, and Lehman

by Frederik Balfour

People queue at a tram stop infront of the HSBC headquarters in Hong Kong. MIKE CLARKE/AFP/Getty Images

It was a scene eerily reminiscent of the dark days of Asia's financial crisis in 1997. Long lines of panicked savers waited outside branches of Hong Kong's Bank of East Asia on Sept. 24 after rumors had started circulating the day before by cell-phone message that the bank was in peril because of its exposure to Wall Street's meltdown. Shares fell 6.9%. The run only lasted 24 hours, ending after the bank issued denials and threatened to take legal action against those spreading the rumors. BEA also won support from Hong Kong tycoons such as Li Ka-shing, who snapped up bank shares, and assurances by the Hong Kong Monetary Authority that the bank's balance sheet was strong.

Ironically, the general public's jitteriness about the health of local banks comes at a time when many of them are actually in pretty good shape. With the notable exception of HSBC (London-based but Hong Kong-listed), which is on the front line of the U.S. financial crisis because of its mortgage portfolio there, Asian banks look strong thanks to minimal exposure to the woes of Fannie Mae (FNM), Freddie Mac (FRE), and Lehman Brothers. Indeed, a number of analysts have buy recommendations for banks in Hong Kong, Singapore, and Korea.

Take the case of Standard Chartered Bank (STAN.L), which Daniel Tabbush, head of Asian Banks Research at CLSA Asia-Pacific Markets is keen on. Unlike bigger rival HSBC (HBC), it has a minimal exposure to loans in Britain or the U.S. While HSBC has about $896 billion of loans in the U.S. and Britain, Stanchart (which is also London-based but derives most of its business from Asia) has just $21 billion. "We are very comfortable with Standard Chartered's [loan] exposure," he says. What's more, it has seen profit growth in excess of 25% for the past 18 months. In contrast, HSBC could be facing billions more in writedowns, bad loans, and other assets which must be marked to market. It has already provisioned for $15 billion.

Thailand and Singapore Look Good

Singapore banks also look well positioned to weather the storm. Stephen Docherty, head of global equities at Aberdeen Asset Management in Edinburgh points out that several Asian banks have been unjustly tarred with the same brush as U.S. and European banks. He notes that United Overseas Bank (UOBH.SI) and Oversea-Chinese Banking Corp. (OCBC.SI), whose share prices are down 15% and 18%, are both "well run, well capitalized, and have a good record of preserving capital." Thanks to sufficient demand for loans, these banks were not compelled to "participate in repackaged, synthetic products" such as collateralized debt obligations to boost profits.

Even Thailand, whose banks were among the worst hit in the region a decade ago, is looking attractive. Sirinattha Techasiriwan, banking analyst at Kasikorn Securities in Bangkok is recommending clients buy shares in Siam Commercial Bank, for which she is forecasting full-year profit growth of 32%, to $590 million.