Limited impact on Asia-Pacific banks from Lehman bankruptcy, says Fitch


17th September 2008- Fitch Ratings has announced preliminary findings from its investigation of exposure to Lehman Brothers held by banks in the Asia Pacific Region. These suggest that, for the most part, net exposures are small and the direct impact on banks will be limited. However, the agency will continue to investigate the full extent of these banks' on-and-off-balance sheet exposures and take account of potential losses that will add to the existing burden of writedowns stemming from the credit crisis.

The largest exposures are held by banks in Japan. Lehman's bankruptcy filing lists Japan's largest unsecured lenders as including Aozora Bank with USD463m, Mizuho Corporate Bank with USD382m, Shinsei Bank, Ltd with USD231m, Mitsubishi UFJ Trust and Banking Corp with USD185m, Sumitomo Mitsui Banking Corporation (SMBC) with USD177m and Chuo Mitsui Trust & Banking Company with USD93m.

The full picture is more complex than the above unsecured loan numbers suggest. Chuo Mitsui has acknowledged total exposure of JPY15bn (about USD150m), while SMBC has acknowledged total gross exposure of USD980m of which USD880m is secured, leaving net exposure of around USD100m. Shinsei has reported total exposure of JPY38bn. Aozora Bank's exposure appears somewhat larger but it had previously taken action to mitigate the risks with the result that its net exposure is much lower. It states that its "hedging instruments" reduce its exposure by USD255m and collateral pledged by a further USD180m, estimating that its "projected exposure" could be reduced to less than USD25m.

For all the banks the exposures are small in relation to equity capital but provisions could adversely affect earnings - this is at a time when banks are already absorbing other losses arising from the credit crisis. Fitch is currently undertaking its annual ratings review of the major Japanese banks and will incorporate the impact of such potential losses as well as broader market developments into its analysis.

Among Indian banks, ICICI Bank Ltd. has disclosed exposure of a modest EUR57m.

Australian banks have not released comprehensive information but Commonwealth Bank of Australia has stated that its exposure is less than AUD150m. Australia & New Zealand Banking Group (ANZ) was mentioned in Lehman's bankruptcy filing with USD69m in unsecured loans and has stated that its total exposure is USD120m, of which USD92m is to subsidiaries of the holding company. The filing also shows that both ANZ and National Australia Bank (NAB) had small exposures in the form of letters of credit. NAB has stated that its total exposure to Lehman is less than AUD100m. Westpac Banking Corporation has indicated that its exposures are under AUD10m, while both Macquarie Bank Ltd. and St.George Bank Limited have said their exposures are immaterial.

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