Asian banks less vulnerable to property risk: Market experts

Soaring home prices in parts of Asia have sparked concerns over whether Asian banks have overextended themselves in housing loans.

But market experts at the Invest Fair 2010 Conference on Friday believe that Asian banks – unlike their Western counterparts – will not be as vulnerable to real estate risk.

This is because they are subject to stricter rules since the governing authorities are more conservative with capital requirements.

In addition, Asian banks assess the borrowers’ repayment ability differently from Western lenders.

DBS Bank chief executive Piyush Gupta said: “The biggest issue around the US sub-prime crisis was that loans were being made to many who had no cash flow, so it was a purely collateral asset-based finance.”

“Generally, Asian banks look at cash-flow as a first way out and housing collateral as the second way out,” he added.

He added that DBS will make a big push in trade financing to tap on the region’s growth.

“Trade has been big for Asia for the last 30 years,” he said. “We believe the nature of trade is going to change substantially from being trade around supply chain to being trade around end consumption demand, including commodities.”

Apart from the banking sector, commodities could be a good long-term investment, industry players said.

Olam International CEO Sunny Verghese said the Singapore Mercantile Exchange (SMX), which goes live for trading end of this month, will be a boost for Asian commodities.

“I think it will fundamentally allow us to exploit a much felt need for a liquid exchange where you can lay off risks in commodity markets,” Mr Verghese said.

Source : Today – 21 Aug 2010

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