Asia Pacific banks can manage impact of Europe crisis, says S&P (By IFN)

GLOBAL: Europe’s debt crisis has raised concerns of creating a global contagion; but its impact on Asia Pacific (APAC)’s banks will be manageable, according to S&P.

The firm, which has downgraded ratings for banks in Europe; including 15 in Spain, said that the interconnected risk between Europe’s sovereigns and its banking system does not have an immediate direct and material impact on APAC bank ratings.

“Currently, the outlooks on 79% of S&P’s APAC bank group ratings are stable; backed by a number of factors including relatively solid growth prospects in the region, good capitalization, strong franchises and stable funding,” it said.

However, it cautioned that should the euro’s debt woes lead to a more severe global recession; this could prompt it to lower its assessment of APAC banks. It could also revise its views on the region’s banks if the industry’s credit profile is impacted by a pronounced global economic slowdown.

“We may also consider negative rating actions if stresses in the Eurozone cause a market dislocation and result in funding difficulties for APAC banks,” it added.

On a positive note, the ratings agency commented that the region’s banks generally have limited investment exposure to euro sovereigns such as Greece, Italy, Ireland, Portugal and Spain. It also noted that while a pullback of lending by European banks in the Asian region could lead to higher credit costs, this could create opportunities for the region’s banks to boost their local and global presence.

Nonetheless, rapid expansion will be constrained as a result of the tough economic landscape; uncertainty regarding the stability of the foreign currency funding market; and higher capital requirements under Basel III, it added.