Analysts say the collapse of Silicon Valley Bank is not likely to have a major contagion effect in Asia, but one person says it could be seen as a “warning” — especially for economies that haven’t hiked interest rates aggressively.
China and Japan have bucked the trend as global central banks hike rates — with the People’s Bank of China keeping its loan prime rates unchanged, and the Bank of Japan maintaining a negative interest rate of -0.1%.
On Monday, markets in China traded higher, while Japan’s Topix index led declines in a wider sell-off in Asia’s morning trade. It came after U.S. regulators announced measures to further stem systemic risks from Silicon Valley Bank’s collapse.
“As for China and Japan, the divergence in monetary policy may not cause a similar crisis but it is a warning for the policymakers in the two influential economies,” Tina Teng, markets analyst at CMC Markets, told CNBC in an email.
Teng added that the reaction in Asian equities — venture fund focused banks, in particular — would largely depend on “how they manage their interest rate risks for those countries that face similar issues.”
“Credit risks might be the major issue that Asian banks face at the back of a gloomy economic outlook and dampened consumer demands,” she said.
The latest measures announced by U.S. regulators could act as a method to contain further contagion risk, IG analyst Tony Sycamore said.
“This morning’s announcement by the FDIC and the Fed will go a good way to ring-fencing the fallout from Silicon Investment Bank’s failure, particularly for the broader economy,” he said, adding that he doesn’t expect the fallout in the region to deepen much further.
“I expect markets to quickly move on and focus on the broader macro issues this week, including tomorrow night’s inflation report and the upcoming FOMC report,” Sycamore said.
Major spillover unlikely
Meanwhile, Moody’s Investors Service said Asian banks are not likely to be affected by the fallout of SVB, given their deposits are mostly in loans instead of Treasuries.
“If you look at the typical loan-to-deposit ratio in Asia, it’s about 90%, so most deposits are invested in loans,” senior credit officer Eugene Tarzimanov at Moody’s told CNBC’s “Squawk Box Asia.”
“Banks obviously do invest in government securities — local bonds, foreign bonds — but that share is not that significant,” he added.
While a number of companies within Asia’s venture capital and tech start-up sector do have exposure to Silicon Valley Bank, not many have openly admitted to seeing major losses from SVB’s bankruptcy.
SPD Silicon Valley Bank, a joint venture between Shanghai Pudong Bank and Silicon Valley Bank, sought to reassure investors over the weekend and said its operations have been “independent and stable.”
The bank said in a statement on its website it “has always operated in a stable manner in accordance with Chinese laws and regulations, with a standard governance framework and independent balance sheet.”
‘Choosing to overlook’
Hong Kong markets led gains alongside indexes in mainland China on Monday, with the Hang Seng index gaining over 2%.
The market is “choosing to overlook” troubles that could arise while taking steps to contain further risk from SVB’s fallout, Hao Hong, chief economist of Grow Investment Group, told CNBC in an email.
He acknowledged that “the implementation could have hiccups from how best to pledge the now marked-down treasury bond portfolio as collateral to borrow from the special lending facility set up by the Fed — but for now, the market is choosing to overlook these technical details.”
For China’s growth, he emphasized financial data will remain the leading indicator, and pointed to the economy seeing a record in lending for the first two months of 2023.
While equities continue to see volatility, Goldman Sachs’ chief Asia-Pacific economist Andrew Tilton said the macroeconomic outlook for the region is unlikely to be deeply affected by the collapse of SVB.
“To the degree that this is addressed relatively quickly by regulators and doesn’t spread to additional entities beyond the ones that have been noted so far, then we’re less likely to see a significant impact on Asia growth outlook,” Tilton told CNBC’s “Squawk Box Asia.”
“We continue to expect 5.5% growth for China this year, mostly driven by the reopening and probably less sensitive to this particular issue,” Tilton said.