Standard & Poor's Ratings Services has undertaken a survey and review of rated Asia-Pacific banking and insurance entities to determine their exposure to U.S. subprime mortgage-related instruments. From this, it has been determined that in almost all cases, their exposure to these instruments is either minimal or manageable at this time.
In respect of their anticipated exposure to U.S. subprime mortgage-related instruments, rated Asia-Pacific banking and insurance entities can generally be classified into three groups:
Group 1. The vast majority of rated entities have negligible exposure. This includes almost all large Japanese banks.
Group 2. A small minority of entities have exposure which Standard & Poor's believes to be somewhat significant but manageable. This group includes a small number of Taiwanese financial services groups. We currently anticipate that expected credit losses from such investment holdings will not materially erode each individual entity's equity base.
Group 3. A few entities are significantly exposed in our view. However, the quality of investment holdings is at the top end of the credit rating spectrum. Consequently, while there might be a book loss stemming from market revaluations, Standard & Poor's projects that the eventual credit loss would be minimal.
As expected by Standard & Poor's, the prudential limits and diversity requirements of investments in offshore and structured products that are embedded in the individual risk management systems of rated Asia-Pacific banking and insurance entities generally contain low levels of exposure to issues associated with the U.S. subprime market.
While the exposure of Japanese banks individually is small, collectively and in absolute terms, it is significant; the Japanese Bankers Association estimate that the sector is exposed by about US$8 billion. Although a full write-down is highly unlikely, such a scenario might still be absorbed by the Japanese banking sector as a whole, given its asset size and profit generation level. The total exposure of the rated Taiwanese financial services groups is far less than it is in Japan.
Standard & Poor's continues to maintain its 'Positive' rating outlook on the
Bank of China Ltd. (BBB+/A-2), in mainland China, notwithstanding that the bank, which would be classified in group 3, has exposure equivalent to a substantial percentage of net profit and equity. These holdings are currently understood to be of a high quality. Should the quality prove otherwise, the bank's equity base might be significantly impacted. In this unlikely event, this might possibly lead to Standard & Poor's electing to downgrade its issuer credit rating on the bank by a notch.
Naturally, Standard & Poor's continues to monitor effects from the U.S. subprime situation on other market segments which may impact financial services entities in the Asia-Pacific and could result in further rating action.
Additional Contacts
Terry Chan, Tel: 61-3-9631-2174
Ryoji Yoshizawa, Tel: 81-3-4550-8453
Tatsuo Kurogi, Tel:81-3-4550-8329
Jaemin Kwon, Tel: 81-3-4550-8549
Ryan Tsang, Tel: 852-2533-3532
Connie Wong, Tel: 852-2533-3553
Ritesh Maheshwari, Tel: 65-6239-6308
Craig Bennett, Tel: 61-3-9631-2098
Michael Vine, Tel: 61-3-9631-2102
Analytic services provided by Standard & Poor's Ratings Services (Ratings Services) are the result of separate activities designed to preserve the independence and objectivity of ratings opinions. The credit ratings and observations contained herein are solely statements of opinion and not statements of fact or recommendations to purchase, hold, or sell any securities or make any other investment decisions. Accordingly, any user of the information contained herein should not rely on any credit rating or other opinion contained herein in making any investment decision. Ratings are based on information received by Ratings Services. Other divisions of Standard & Poor's may have information that is not available to Ratings Services. Standard & Poor's has established policies and procedures to maintain the confidentiality of non-public information received during the ratings process.
Ratings Services receives compensation for its ratings. Such compensation is normally paid either by the issuers of such securities or third parties participating in marketing the securities. While Standard & Poor's reserves the right to disseminate the rating, it receives no payment for doing so, except for subscriptions to its publications. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.
