Singapore Banking Crisis

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An honorable member of the Coffee Shop Has Just Posted the Following:

Forget about Europe, investor tips Singapore banking crisis



While investors fret about the carnage in European bank stocks, some analysts are warning that they're ignoring problems much closer to home: the possibility of a major Asian banking crisis.

Legendary Swiss investor, Felix Zulauf who runs Zulauf Asset Management, was one of the first to sound the alarm, warning that China's economic woes will inevitably infect Singapore and would likely prompt a banking crisis.

"Singapore, which has attracted a lot of foreign capital over the years because of its image as a strong-currency state, will be extremely exposed to the situation in China," he told Barron's Roundtable last month.

"Singapore's banking-sector loans have grown dramatically in the past five or six years. Singapore is now losing capital, which means the banking industry is losing deposits".

He argued this would likely cause carry trades to backfire, triggering heavy losses for those who have borrowed heavily to buy higher-yielding assets.

"I expect a banking crisis to develop in Singapore and to spread eventually to Hong Kong," he added.

But Zulauf isn't alone in worrying about the financial health of Singapore's major banks. Analysts warn that the Singapore's three largest banks – DBS, Oversea-Chinese Banking Corp and United Overseas Bank – could suffer a sharp spark in problem loans if the Chinese economy brakes sharply.

After all, all three are major lenders in the Asian region, with significant corporate loan books. The three banks could face a big jump in their problem loans if there is a spate of defaults by debt-laden Chinese corporates, or from other companies in the region which are already seeing their earnings tumble as a result of flagging Chinese growth.

Already, investors are showing a skittishness about the banks. Although Singapore's stock exchange has been closed this week due to Chinese New Year, fears about the hefty exposure of Singapore's three biggest banks to mainland China have been weighing on their share prices.

The share price of DBS has slumped close to 30 per cent in the past year, while that Oversea-Chinese Banking Corporation is down 27 per cent. At the same time, the share price of United Overseas Bank (which has a lower exposure to China) has declined by 23 per cent.

Meanwhile, jitters over the exposure of Asian banks to China is causing global investors to withdraw funds from Singapore, which has helped push the Singapore dollar close to a six year low.

It's a similar problem in Hong Kong, where capital outflows appear to be accelerating as investors worry about the huge exposure that the city's major banks have to Chinese borrowers.

Analysts warn that this could create a liquidity problem for Hong Kong's banks because while global investors are able to quickly withdraw their funds from this deregulated financial centre, local banks face a much tougher task in extracting their cash from mainland China.

In addition, capital outflows are putting upward pressure on short-term interest rates, and fuelling nervousness about the outlook for housing prices in Hong Kong, which have already fallen almost 10 per cent from their September peak.

The Hong Kong dollar recently touched a seven and a half year low against the US dollar, amid growing speculation that the city will be forced to end its currency peg with the greenback.

And these worries are already being reflected in sharp slides in the share prices of UK-listed banks such as HSBC and Standard Chartered, both of which are estimated to derive around a third of their revenue from China.

HSBC saw its share price drop by a further 1.4 per cent in trading overnight, while that of Standard Chartered dropped by 5.6 per cent.

In the past year, HSBC has seen its share price tumble by 29 per cent, while Standard Chartered's share price has notched up a stunning 55 per cent decline.



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Tuniasek whore jinx's recent huge investments in Chinese banks must be facing huge losses.

Never mind lah for it's only CPF money.


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