Asian flu threatens high street banks as debts are revealed

British high street banks' exposure to the troubled South-east Asian region runs into billions of pounds, according to a leading investment bank. As Lea Paterson reports, the Asian crisis could spell an end to the current bull run in European bank stocks.

Barclays Bank and NatWest Bank each have an estimated pounds 1.2bn exposure to Korea, Indonesia and Thailand, while Lloyds Bank has an pounds 800m exposure, according to an analyst's note published last week.

Stock markets have concentrated so far on the impact of the crisis on American banks and those with strong Far Eastern links, like HSBC Holdings and Standard Chartered. But Britain's high street banks are also embroiled in the region, according to John Leonard, banking analyst at Salomon Smith Barney, the US investment bank.

In recent months UK-based bank stocks have soared on the back of restructuring and consolidation within the industry. But, as stock market awareness of banks' exposure to the region increases, investors should be prepared for "Asian flu" to spread throughout the European banking sector, according to Mr Leonard.

The analyst said: "Exposure to Asia is quite broadly spread across the industry. But the degree of reaction in the market is at variance with the degree of the exposure".

Salomon Smith Barney estimate the total exposure of leading British banks to Korea and Indonesia to total $9.9bn (pounds 6bn). Mr Leonard believes banking exposure to Thailand to be roughly similar to that of Indonesia, taking British banking exposure in the three countries to almost $14bn.

To date, most European banks have failed to provide details of their exposure to troubled South-east Asia.

"Estimating the potential provision exposure of individual banks remains an art, given limited disclosure of both the total amount and the composition of outstanding credits," said Salomon Smith Barney.

The magnitude of the exposure to Korea and Indonesia alone could lead the British banks to post 1997 provisions of up to pounds 100m, according to the Salomon Smith Barney note. All the large British banks are scheduled to report 1997 profits within the coming weeks.

Bad loans are just one of a number of implications of the Far Eastern crisis for the financial health of the European banks. Banks should also be braced for a sharp downturn in profitability in their Far Eastern investment and wholesale banking activities.

Salomon Smith Barney said: "There is little question that securities market volumes and fees from this region will decline sharply in 1998; managing costs down as rapidly seems impossible."

A handful of leading banks - mostly in the US - have admitted the Asian crisis has hit investment banking profits. These include Chase Manhattan, which made a trading loss of $160m (pounds 94m) in October because of volatility in the emerging markets.

A wave of consolidation helped European bank shares to outperform the market for much of 1997 and to number among brokers' top tips for 1998.

But prospects for the banking sector began to sour last week as Moody's, the influential US credit ratings agency, announced it could downgrade a number of European banks because of their exposure to South-east Asia.

With the exception of HSBC and Standard Chartered, which both have strong links to the troubled region, British bank shares have so far emerged relatively unscathed.

Provisions for the Asian crisis should be able to be contained easily within the current earnings of European banks. Barclays made a profit of over pounds 2bn in 1996. NatWest earned more than pounds 1bn in profit.

Bank exposure to Korea & Indonesia (estimated)

Total exposure Provision

HSBC Holdings pounds 2.0bn pounds 240m

Standard Chartered pounds 1.7bn pounds 190m

Barclays pounds 0.9bn pounds 100m

NatWest pounds 0.9bn pounds 100m

Lloyds TSB pounds 0.6bn pounds 60m

Source: Salomon Smith Barney

PROMOTED VIDEO
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Accounts Payable

£12 - £15 per hour: Cameron Kennedy Recruitment: Excellent opportunity to join...

Technical BA - Banking - Bristol - £400pd

£400 per hour: Orgtel: Technical Business Analyst - Banking - Bristol - £400pd...

Account Management Strategy Manager

£38000 - £42000 per annum + competitive: Real Staffing: Required skills:Previo...

Business Analyst Consultant (Financial Services)

£60000 - £75000 per annum: Harrington Starr: Business Analyst Consultant (Fina...

Day In a Page

A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

Why did we stop eating whelks?

Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice