European bank claims highest on Singapore corporates

Find out how bad it can get for Singapore if European deleveraging continued.

Data from Morgan Stanley show that European bank claims on Asia is highest on Singapore corporate at nearly 20% of their total deposits, much higher than the total average for the region at 8%.

But Morgan Stanley says it’s barely ‘manageable’. The same holds true for the Asia as a whole.

Here’s why, according to Morgan Stanley:

A broad-based exit of European banks from Asia would pose a significant challenge for the region. We expect the cost of capital to rise and credit conditions to weaken.

On its own, however, such an exit is not enough to lead to a credit crunch if orderly and the exposures are less than commonly perceived.

Fresh data now indicate that impact of EU deleveraging on Asia began as early as 3Q11. Its noteworthy that there is also evidence of Asia Pac banks stepping in where eurozone banks are retreating.

Asia’s exposure to European banks is manageable. At 8% of total deposits (4% including China), we believe that Asian banks could absorb European bank claims, if required.

For non-financial corporates, we expect corporate deleveraging would be similar to 2009 and 2010 even if no loans were rolled.

We believe that China is likely to be least affected in this environment.