Asian banks have largely escaped the worst of the global debt crisis, but housing market downturns, especially in China and India, still threaten to pile up bad loans.
HONG KONG: Asian banks have largely escaped the worst of the global debt crisis, but housing market downturns, especially in China and India, still threaten to pile up bad loans and slow the region’s economy.
After property crashes burnt Japanese and Southeast Asian lenders in the 1990s, they have been more cautious. So falling home prices are much less of a risk than in the US, where the subprime mortgage meltdown brought down several leading banks. Asian banks tend to limit loans to 70% of home prices, compared to between 80% and full value in the West. And few mortgages are securitised, let alone twisted into the kind of complex investment packages that went toxic as US homeowners defaulted.
But just as in the US and Europe, property booms in Asia are turning to slowdowns, and even busts. With half the wealth of Malaysia, Singapore, South Korea and India tied to property, according to CLSA, the potential impact on banks and economies is wide. “There’ll be a drag on economies,” said Leland Sun, founder of Hong Kong-based Pan Asian Mortgage.
The Asian Development Bank cut its 2009 economic growth forecast for Asia to 7.8% in mid-September from 7.2%, but the global financial crisis has deepened since.
After strong run-ups, Hong Kong and Singapore home prices are widely tipped to fall 15% next year as job cuts hit Asia’s main financial centres.
In South Korea, unsold homes are at a record high, prices are falling and small construction firms are vulnerable. India’s property boom fizzled into a price drop of a third this year in some cities, and analysts expect the same in 2009. But the biggest risk of property loan defaults is in China. Developers are slashing prices to stem a sales slump, and dragging the whole market. As in the US, homeowners could flee if they owe banks more than their property is worth.
In India, local media reports say banks are tightening lending for property after total credit grew 26% this year.
Axis Bank, Yes Bank and HDFC Bank have the biggest exposure to developers, at around 12% of loans. And just over a quarter of loans at ICICI Bank are residential mortgages.
“Developers are in trouble in India and China because they took on high gearing to expand land banks,” said Aaron Fischer, Asia property analyst at CLSA. “You’ll see some bankruptcies.”
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