ASEAN KEY DESTINATIONS
Global Credit Crisis:
-ADB calls for concerted action as Asian bankers meet in Bangkok
-Joint operation launched to ease market concerns
-Clients at AIG’s Singapore unit remain nervous
-Thailand’s AIG Retail Bank gets liquidity injection
The Asian Development Bank has urged the region's regulators and central banks to coordinate their action as Asian central bank governors and officials gather in Bangkok, Thailand, today, agencies reported.
ADB President Haruhiko Kuroda on Thursday warned that the turmoil roiling top-flight banks in the West could still hit big Asian lenders.
"Even if subprime-related losses have to date been lower than elsewhere, this is no guarantee recent events will not affect major Asian financial institutions," he said in a speech in Manila, Philippines.
The Southeast Asia, Australia and New Zealand (SEANZA) Governors' Symposium which runs from September 19 through 21 this weekend for a regular meeting that comes amid an upheaval on Wall Street that has battered Asian markets.
The meeting was scheduled before the turmoil in the U.S. banking system triggered panic selling on world stock markets. The 20-member group includes the central banks of Japan, China, Australia, India and several South Asian and Southeast Asian countries.
Reuters quoted the Bank of Japan Deputy Governor Kiyohiko Nishimura, who will attend the Bangkok meeting, as saying on Thursday that tensions in global financial markets had increased but he did not expect the turmoil to seriously affect Japan's financial system.
"Even considering the effect of the failure of major (US) investment banks, I don't expect it to seriously affect the stability of Japan's overall financial system," Nishimura said in a speech to securities brokers in Tokyo.
Commercial lenders in Asia have seen their shares caught up in the downdraft, but they have largely dodged the huge credit losses that have rocked Wall Street.
While the region has ample liquidity, ADB’s Kuroda warned that several asset markets, particularly real estate, were vulnerable to shocks and that big differences in the development of financial systems among Asian economies were a cause for concern.
"We still need to assess the spillover from this week's events on our region's financial institutions," he said at the opening speech of a conference on the subprime-mortgage crisis.
"We need to establish best practices for handling liquidity shortages or ensuring effective financial sector safety nets. Also, existing arrangements need to be more flexible to resolve weak assets "on" or "off" financial institutions' balance sheets."
Japan and Australia pumped further $17 billion into money markets on Thursday to prevent banks from hoarding cash amid a global crisis of confidence sparked by the dramatic Wall Street shake-up.
Earlier this week, the ADB warned that the financial convulsions in the West could hurt growth in Asia. The lender forecast developing economies in the region would grow by 7.5 percent this year, the slowest growth in the region since 2003.
Debt rating agency Standard & Poor's said on Thursday the direct exposures of many rated banks in Asia ex-Japan to Lehman Brothers are not expected to be significant enough to materially damage their credit profiles. But it added that problems in broader global markets and specifically at Western banks would still put Asian banks under stress.
"We continue to believe that the risk to Asian banks is more from the impending economic slowdown and market turmoil than from direct exposure to the distressed U.S. financial institutions," S&P credit analyst Ritesh Maheshwari said in a news release.
Joint operation launched to ease market concerns
Central banks around the world launched a joint operation to stem panic in credit markets amid mounting political calls for "decisive" action to end the crisis as the US Federal Reserve threw $180 billion on Thursday, into a global fight against the financial crisis as Wall Street legend Morgan Stanley became the latest name under attack, reported AFP.
The European Central Bank, the Bank of Japan, Bank of England (BoE), Bank of Canada and the Swiss National Bank all joined what the BoE called "coordinated measures designed to address the continued elevated pressures in US dollar short-term funding markets."
Fears of mounting credit losses have hit world stock markets this week and forced the most dramatic transformation in the US banking landscape since the Great Depression.
The collapse of investment bank Lehman Brothers and the $85 billion US government bail-out of insurer American International Group (AIG) this week have knocked Asian banking stocks and prompted central banks to pump funds into strained money markets.
Amid an international rush for safe investments, interest rates on US Treasury bonds dropped to their lowest point since 1954. The price of gold also shot up to $868.5 in Hong Kong from the closing price there of $785.5.
Markets fear that the US central bank’s rescue of AIG this week might not be enough to end the credit crunch.
The White House said on Wednesday that recent US economic news painted a "very mixed picture" but added that the United States had "the strength" to overcome the current financial crisis.
The US Treasury announced it would sell 40 billion dollars in 35-day bonds to help the Federal Reserve as it battles to shore up the economy. Markets were turbulent as they digested the AIG rescue.
The US government got a 79.9-percent stake in AIG in return for the 85-billion-dollar loan, which followed hard on the heels of its takeover of US mortgage giants Fannie Mae and Freddie Mac.
Clients at AIG’s Singapore unit remain nervous
Hundreds of customers continued to line up outside the Singapore offices of Amercian International Assurance (AIA), a unit of AIG Thursday, hoping to terminate their policies or to seek answers on the bailout of AIG, reported AFP.
AIA Singapore took out a full-page advertisement in the Straits Times newspaper Thursday telling policyholders it has "more than sufficient capital and reserves to meet all obligations."
On the same day, Mark O'Dell, executive vice-president and general manager of AIA in Singapore resigned, adding to the confusion. The company clarified in a statement that O’Dell’s departure was "in no way related to the recent developments at AIG".
"It is a personal decision that he has been planning for some time," the statement said. Effective Friday, Kenneth Juneau will lead the company until a new general manager is found, the statement said. Juneau is executive vice president and senior regional life executive of AIA's regional office.
In a move to help ease AIA’s policyholders worries, Singapore's de facto central bank, the Monetary Authority of Singapore (MAS), said that apart from O'Dell there were no other changes in AIA Singapore's management.
"MAS' regulatory oversight of AIA and all insurers in Singapore is rigorous. We are satisfied with the ability of the company to carry on business as usual and to meet new demands even when there are any changes in management," it said in a statement.
AIA in Singapore and Hong Kong said only a fraction of policyholders had cancelled, and announced measures to woo back their clients. An AIA spokeswoman could not say how many customers in Singapore had cancelled their policies.
Thailand’s AIG Retail Bank gets liquidity injection
Authorities and AIA subsidiaries around the region sought to assure customers that the local firms were not in danger. In Thailand, AIG Retail Bank has received a 14 billion baht ($410 million) liquidity injection from the troubled parent, Reuters quoted a bank official as saying Thursday.
"AIG has provided additional liquidity support to us to show its commitment to the bank and its growth," Charly Madan, chief executive of the Thai subsidiary, told reporters.
"We continue to experience strong and profitable growth," he told reporters.
AIG Retail Bank, which has 23 billion baht in assets and 17 billion baht in loans, said it had seen few deposit withdrawals over the past two days. The bank has 19 billion baht in deposits, up from 13 billion baht early this year.
AIG's operations in Thailand also include the Thai unit of American International Assurance (AIA) and the AIG Card Company.
AIA (Thailand) said on Wednesday it had ample reserves to cover its obligations and that it was feeling no effect from its parent's liquidity problems.
AIG Retail Bank, which began operations in March 2007, provides deposit services, lending to small and medium-sized enterprises and personal loans. It has 10 branches.
It reported a net profit of 172 million baht in the first six months of this year and has a capital adequacy ratio of 24.81 percent, compared to a requirement of 8.5 percent.