Asia Banks Dodge the Wall Street Crisis

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"This bank has no exposure to troubled U.S. paper and we see personal loans and mortgages picking up quite well," she says. The bank's shares are off 18.5% this year.

Indian banks, too, are well insulated from the troubles roiling other financial institutions, thanks to convertibility restrictions in the country that prevented banks from getting overseas exposure. What's more, Indian banks including State Bank of India (SBI.BO), ICICI Bank (ICN), and HDFC Bank (HDB) are well capitalized from secondary stock offerings in the past 12 months that raised a combined $15 billion. Property exposure at home is relatively small, accounting for less than 10% of overall assets in the banking system, so even if housing prices slump, these banks are still in a strong position. "The health of the banking system in general is good," says N. Krishnan, head of research at CLSA India.

Not Immune

To be sure, Asian banks haven't been able to fence themselves off entirely from the financial meltdown. To the extent the region is still strongly dependent on export growth, Asian economic growth is bound to suffer, and this will have a knock-on effect for the banks. Nowhere is this truer than in China, where a slowdown in U.S. demand has taken its toll on thousands of small manufacturers who have shuttered their factories in southern China. "Credit risk is the No. 1 risk for Chinese banks," says Ryan Tsang, senior director of Financial Institutions Ratings at Standard & Poor's in Hong Kong. "The risk is coming from a global slowdown, how that impacts the economy of China, the corporate sector, and NPLs."

Nonperforming loans in China, which stood at 6.1% in June, could increase by 50% says CLSA's Tabbush, who notes a sagging property sector puts China Merchants Bank (600036.SS) in a particularly vulnerable place. Investors in the Shanghai-listed company share his concerns: The stock is down more than 55% this year.

Balfour is Asia Correspondent for BusinessWeek based in Hong Kong.