SVB Collapse May Serve as a Warning for Asia’s Economies

While the collapse of Silicon Valley Bank (SVB) is not expected to significantly impact Asian markets, some analysts believe it should serve as a warning sign for economies that have not aggressively hiked interest rates. China and Japan, for example, are bucking the trend of global central banks increasing rates. As a result, the announcement by U.S. regulators to stem systemic risks from SVB’s collapse is believed to have a limited impact on Asian markets, and markets are expected to focus on macro-level issues moving forward.

Divergence in Monetary Policy Could be a Warning for Policymakers

Certain analysts believe that the divergence in monetary policy in China and Japan may not necessarily cause a crisis similar to what happened to SVB but rather serve as a warning to policymakers in influential economies. This is especially true considering credit risks faced by Asian banks caused by a gloomy economic outlook and dampened consumer demand. As a result, markets are expected to examine how interest rate risks can be managed in countries facing similar issues.

Moody’s: Major Spillover Unlikely

Moody’s Investors Service does not believe that Asian banks will suffer from the fallout of SVB’s collapse as their deposits are primarily invested in loans rather than Treasuries. Moreover, with the typical loan-to-deposit ratio in Asia being around 90%, only a fraction of deposits are invested in bonds. Therefore, any potential impact of SVB’s bankruptcy on ventures in Asia’s capital and tech start-up sectors would be limited.

Related Facts

• China’s People Bank has kept its prime loan rate unchanged, while Japan’s Bank of Japan has maintained a negative interest rate of -0.1%.
• SPD Silicon Valley Bank assured investors of its independent and stable operations and always adhered to Chinese laws and regulations.
• Credit risks faced by Asian banks are a critical issue given the gloomy economic outlook and dampened consumer demand.

Key Takeaway

While SVB’s collapse is not expected to have a ssignificantly impactarkets, it should serve as a warning for economies that have not aggressively hiked interest rates. Nevertheless, the fallout from SVB’s bankruptcy is expected to be contained, given how most Asian banks invest their deposits.

Conclusion

Asian economies such as China and Japan should take heed of cautionary signs and ensure they stay committed to managing their interest rate risks while striving for a healthy economic outlook. While the SVB crisis is unlikely to cause a massive contagion effect, policymakers should still prioritize managing potential credit risks for Asian banks, particularly during the challenging economic and political landscape currently faces.