NYTimes 25 Settembre 2008

HONG KONG — Throngs of depositors lined up outside the headquarters and branches of the Bank of East Asia here on Wednesday to withdraw their money, highlighting widespread anxiety in Asia that Wall Street’s recent difficulties might spread across the Pacific.

The Bank of East Asia, Hong Kong’s third-largest with $51 billion in assets, said that malicious rumors that the bank was in distress had begun spreading through cellphone text messages late Tuesday, and the Hong Kong police said they would investigate. The Hong Kong Monetary Authority and the bank itself denied that there was any basis to the rumors.

Depositors who lined up outside the company’s headquarters in the city center said that after the failure of Lehman Brothers, they no longer fully trusted any financial institution. “If a business as big as Lehman can go down, then we’re scared,” said Ann Chan, an off-duty nurse, whose husband called her Wednesday afternoon and sent her to wait in line to withdraw their money.

The bank run stoked broader concerns about the stability of banking systems in emerging market economies.

Yet most bankers and economists say that with few exceptions — notably Russia and India and possibly the smaller banks in mainland China — the financial systems in most emerging markets are fairly well positioned to weather the global credit problems.

There has been little sign so far that Asia will be convulsed again by the capital flight, plunging currencies and widespread bank failures that characterized the Asian financial crisis in 1997 and 1998 — although the rate of corporate bankruptcies and bank failures could rise as the region’s exports slow because of faltering economies elsewhere.

As Ajay Kapur, the chief global strategist at Mirae Asset, a large South Korean investment bank, put it, “We’ve already had our crisis, so it’s pretty difficult to blow up twice in a decade.”

He added, “Each region gets a chance to blow up, and this is not Asia’s turn.”

Standard & Poor’s nonetheless reduced the credit outlook for six Asian banks and six Asian insurers to stable, from positive, late last week, noting slowing economies.

In contrast, Standard & Poor’s and Moody’s both lowered their credit outlooks for Bank of East Asia to negative, from stable, late last week, after the bank was forced to restate its earnings for the first half of this year. The bank announced that it had discovered an unauthorized “manipulation” of how it valued equity derivatives, and reduced first-half profit by $16.8 million. The bank attributed the loss to a rogue trader, not global credit problems.

Both credit rating agencies expressed concern about what the incident suggested about the bank’s risk controls.

But Ryan Tsang, the China bank ratings analyst at Standard & Poor’s, said by telephone Wednesday evening, “We believe the Bank of East Asia’s overall financial health is sound.”

The Bank of East Asia also announced on Wednesday, after the bank run had started, that its exposure to the Lehman Brothers bankruptcy was $54 million — or 0.1 percent of its assets.

The bank’s stock closed at 25.15 Hong Kong dollars, or $3.24, down 6.9 percent.

Joseph Yam, the chief executive of the Hong Kong Monetary Authority, which is the territory’s central bank, said the monetary authority had offered cash loans to the Bank of East Asia but had been assured that the bank did not need it. The bank’s capital adequacy ratio stands at 14.6 percent, well above the international requirement of 8 percent, and its liquidity stands at 40 percent, well above Hong Kong’s requirement of 25 percent, he said.

The bank run was the first in an Asian financial center since Wall Street’s turmoil began this month. It followed a rush last week in Hong Kong and Singapore by some policy holders to withdraw money from the American International Group, the world’s largest insurer.

The Bank of East Asia remained open long after normal business hours Wednesday. The bank did not say how much money had been withdrawn.

The roughly hourlong line outside the Bank of East Asia’s headquarters was quiet and orderly, watched by a sizable contingent of police officers and security guards in the heart of Hong Kong’s financial district.

Hong Kong started offering depositor insurance only two years ago. A government-backed bank deposit protection board, financed with fees collected from banks, now guarantees accounts up to 100,000 Hong Kong dollars, or $12,800, for each depositor.

But depositors in line outside the Bank of East Asia lacked confidence in the untried system and repeatedly mentioned the Lehman debacle. “I have my savings in there, and people are like sheep — I want to be on the safe side,” said Tam Hui, a 70-year-old retired civil servant.

Emerging markets are generally in a stronger position now than at the start of the Asian financial crisis. Their governments and companies have been fairly restrained about borrowing in foreign currencies in recent years, even in an age of easy credit that tripped up the United States. Emerging-market borrowers, including corporations, have also tended to avoid the short-term borrowing that created problems in the 1990s, so they have less debt to refinance in the coming months.

Banks in Asia tend to follow the European model of combining commercial and investment banking, or relying just on commercial banking, instead of following the American model until recently of allowing highly leveraged investment banks.

A detailed analysis last Friday by the Dutch financial group ING concluded, “Details of the corporate profile are less worrisome than might have been feared.”

The report found that $81 billion of the $631.5 billion in outstanding emerging-market corporate bonds would be maturing between now and the end of next year. The debt maturing by the end of next year is concentrated among financial companies, which accounted for 70 percent of the maturing debt.

But less than a third of the $81 billion was issued by borrowers with a junk bond rating or no rating, who could have severe difficulties finding lenders to buy more bonds to replace those that are maturing.

When it comes to government bonds, only $30 billion of the $525.3 billion outstanding will be maturing through the end of next year. China has the largest payments coming due in the fourth quarter of this year, at just $1.6 billion, ING calculated.

By comparison, estimates of the interest that China earns on its $1.8 trillion in foreign exchange reserves range from $13 billion to $18 billion a quarter.

Even Thailand, which has been intervening in markets, still had $101 billion in foreign exchange reserves last month. India had $295 billion and Russia had $581 billion.

While emerging markets as a whole appear to be in strong financial condition — at least until eroding exports begin to hurt their balance sheets — there are important exceptions. Russia, South Korea and India have all ignited concern, as has Eastern Europe.

While Russia’s enormous foreign exchange reserves would seem to give it the ability to bankroll any assistance that might be needed to banks there, the speed with which the conflict with Georgia broke out and an apparent shift in government attitudes toward business have unnerved many investors.

The presence of new uncertainties has eroded broader confidence in Russia and contributed to capital flight, said Dariusz Kowalczyk, the chief investment strategist at CFC Seymour, a Hong Kong securities firm.

Eastern Europe has drawn attention because of its heavy reliance on exports to the slowing economies of Western Europe. Countries in the region, particularly Baltic countries, have tended to run trade deficits that they finance through borrowing.

South Korea and India have both caused concern because of their reliance on foreign borrowing. But neither has substantial sums of bonds maturing by the end of next year, and both have large reserves of foreign exchange.

Still, India is the more worrisome case. “A substantial part of the government funding is done in the international market,” said Takahira Ogawa, director of Asian and Pacific sovereign debt ratings at Standard & Poor’s office in Singapore. “That makes their position more vulnerable right now.”

A Goldman Sachs report on Tuesday predicted that for Indian banks “earnings growth will still be robust,” but there might be “head winds” from rising inflation.

Growth in bank lending inside India has been substantial in recent years, and countries with rapid increases in bank lending have historically been the most vulnerable if it turns out that many of the new loans were unwise. Commercial and retail lending combined are on track to increase 25 percent this year.

By KEITH BRADSHER and HEATHER TIMMONS

Source >  NYT.com | sept 24