China and Thailand’s central bankers said there has been limited fallout for their banks from the US credit crisis that sent Lehman Brothers Holdings Inc into bankruptcy and wiped $19 trillion from world stocks in the past year.
“There is not much impact on Asia this time because the problems haven’t taken place here,” Bank of Thailand Governor Tarisa Watanagase told reporters on Saturday in Bangkok, where she is hosting a meeting of central bankers. “So far the impact on Thai banks is very little.”
The region’s policy makers this week played down concerns that their countries will be subjected to a meltdown similar to that of 1997, saying contagion from the US turmoil is unlikely to infect their financial systems. Asia’s key stock index rebounded on Friday from a three-year low as central banks pumped cash into money markets and the US worked on plans to shore up banks and insurers.
“The direct impact of the sub-prime crisis is currently limited,” China central bank Deputy Governor Su Ning said at a financial conference on saturday in Shanghai. Still, “China will be highly alert to the negative effects of unstable global financial markets and decreasing overseas demand.”
The MSCI Asia Pacific index rose 5.5 per cent yesterday and Asian currencies, including the South Korean won, Philippine peso and Indonesia rupiah, advanced. The US government announced plans to purge banks of bad assets and crack down on speculators who drove down shares of financial companies.
‘More Confidence’: The US plan “should help encourage new investors to have more confidence to inject liquidity into US financial institutions,” Paisarn Lertkowit, a foreign-exchange dealer at Bangkok Bank Pcl, said on Saturday in a telephone interview.
“Capital outflows from Asia may continue for a while,” he said. “When it becomes clear that the US is gradually recovering, funds will start to flow back.”
Central banks in Japan and Australia pumped $113 billion into money markets this week, joining European and US counterparts in supporting the financial system and attempting to revive confidence. Earlier in the week, China cut interest rates for the first time in six years and allowed most banks to set aside less reserves.
“We (central bankers) need to be watchful and decisive,” Tarisa said on Saturday. “We have a swap arrangement between us and standby credit to inject liquidity if problems arise.”
Central banks around the region have boosted cooperation to strengthen their financial markets and set up emergency measures to bail out their systems in case of crisis. Japan, South Korea, China and Asean countries are discussing the creation of a pool of $80 billion in Asian foreign-exchange reserves to be tapped in case the nations need to protect currencies.
Regional Safeguards: The reserve pool is an expansion of a current arrangement that only allows for bilateral currency swaps. It is designed to ensure central banks have enough to shield their currencies from speculative attacks like those that depleted the reserves of some countries during the Asian financial crisis a decade ago.
The region has since accumulated more than $3.3 trillion of reserves, about half of the global total.
Thailand, which triggered the Asian financial crisis with the devaluation of its baht in July 1997, has no shortage of capital and the nation’s lenders are “strong and resilient,” Tarisa said this week.
AIG Retail Bank Pcl, a Thai unit of American International Group Inc, has adequate assets and isn’t affected by the problems that led to the US government’s $85 billion takeover of its parent, President Charly Madan said on Sept 18.
Chinese Banks: Chinese banks may sustain limited negative effects from the plummeting value of related investments, said Ken Peng, an economist at Citigroup Inc in Shanghai.
Lehman filed the biggest bankruptcy in history on Sept 15, listing $613 billion of debt. Chinese banks including Industrial & Commercial Bank of China and Bank of Communications have $454 million at risk as a result, according to data compiled by Bloomberg.
“The direct linkages between Chinese financial institutions and American ones are fairly limited,” Peng said on Saturday in a telephone interview. “The direct holdings are very small compared to the asset base of Chinese firms, so the direct effect is not that significant.”
China will strike a balance between controlling inflation and supporting economic growth, the central bank’s Su said on Saturday.
“We should continue to be alert to inflation,” he said. “We are confident about maintaining the stability of the financial market.”
While China’s growth is the fastest of the world’s 20 biggest economies, policy makers are concerned that weakening global growth has increased the risk of a slump. The People’s Bank of China cut the one-year lending rate to 7.20 per cent from 7.47 per cent on Sept 15.
