Although the Asian financial sector has not completely escaped the ripple effect of the global financial meltdown, its exposure to the centre of the financial crisis - the subprime mortgage crisis in the US - was limited. This is a direct result of the 1997/8 regional economic crises, and since then Asian banks have been quite conservative, as well as being heavily regulated by national governments.
“Most regional banks are not sophisticated enough or are too heavily regulated to engage in those types of risky products,” says Jan Lambregts, global head of financial markets research, Rabobank International. “That has sheltered them from the worst of the fallout from the financial crisis.”
The Asian banking sector has not been left completely untouched - there has been some bank merger and acquisition (M&A) activity, for example Japan's Shinsei Bank and Aozora Bank merger, creating the country’s sixth largest bank. But by and large, the high-profile bank failures seen in the US and Europe, such as Lehman Brothers, Wachovia and Fortis, did not happen in Asia and, until now, the banks have not encountered any insolvency problems.
At a certain point, however, the global financial crisis became so widespread that there wasn’t any shelter from it. The shock effects of reduced global demand inevitably impacted Asia, most significantly through trade. For example, China's exports fell 17.5% in January 2009 compared to a year earlier, marking the biggest drop in more than 10 years; Taiwan’s exports in April fell 34% from a year ago, the eighth consecutive month of decline; while Japanese exports fell 40.9% in May from a year earlier.
“The world has become a much more integrated place,” says Lambregts, “so even though Asia is not at the epicentre of the financial problems, the region has become more integrated into the global trade system over the past few years, particularly since China joined the WTO [World Trade Organisation] in 2001. So instead of de-coupling, this process has really coupled Asia to the rest of the world. Therefore, when the rest of the world went into freefall following the collapse of Lehman Brothers and the financial crisis teamed up with an economic recession, threatening to create the mother of all recessions, Asian exporters cut back on their production very significantly.” This has led to a substantial de-stocking cycle in the ‘workshop of the world’.
“Most regional banks are not sophisticated enough or are too heavily regulated to engage in those types of risky products,” says Jan Lambregts, global head of financial markets research, Rabobank International. “That has sheltered them from the worst of the fallout from the financial crisis.”
The Asian banking sector has not been left completely untouched - there has been some bank merger and acquisition (M&A) activity, for example Japan's Shinsei Bank and Aozora Bank merger, creating the country’s sixth largest bank. But by and large, the high-profile bank failures seen in the US and Europe, such as Lehman Brothers, Wachovia and Fortis, did not happen in Asia and, until now, the banks have not encountered any insolvency problems.
At a certain point, however, the global financial crisis became so widespread that there wasn’t any shelter from it. The shock effects of reduced global demand inevitably impacted Asia, most significantly through trade. For example, China's exports fell 17.5% in January 2009 compared to a year earlier, marking the biggest drop in more than 10 years; Taiwan’s exports in April fell 34% from a year ago, the eighth consecutive month of decline; while Japanese exports fell 40.9% in May from a year earlier.
“The world has become a much more integrated place,” says Lambregts, “so even though Asia is not at the epicentre of the financial problems, the region has become more integrated into the global trade system over the past few years, particularly since China joined the WTO [World Trade Organisation] in 2001. So instead of de-coupling, this process has really coupled Asia to the rest of the world. Therefore, when the rest of the world went into freefall following the collapse of Lehman Brothers and the financial crisis teamed up with an economic recession, threatening to create the mother of all recessions, Asian exporters cut back on their production very significantly.” This has led to a substantial de-stocking cycle in the ‘workshop of the world’.
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