By Shamim Adam
Sept. 18 (Bloomberg) -- Asian policy makers see little risk their countries will be hit by a crisis similar to the economic meltdown of 1997, downplaying concern the U.S. turmoil will infect the region's financial system.
``This is nothing'' compared with 1997, Bank of Thailand Governor Tarisa Watanagase said on Bloomberg Television in Bangkok today. ``The direct impact is very limited, although we may see some slowdown through the trade channel later on.''
Central banks continued to pump money into their financial systems to ensure liquidity as investors sold shares of Australia's Macquarie Group Ltd. and Kookmin Bank, South Korea's biggest lender. Asian banks have limited exposure to Lehman Brothers Holdings Inc., which filed for bankruptcy earlier this week, officials say.
``The risk to Asian banks is more from the impending economic slowdown and market turmoil than from direct exposure to the distressed U.S. financial institutions,'' said Ritesh Maheshwari, a Standard & Poor's analyst in Singapore. Their ``strengthened balance sheets as a result of healthy profits can withstand the impact of likely losses from direct exposure.''
The Asian financial crisis, set off by plunging currencies, led to the collapse of companies as they buckled under billions of dollars of debt, forcing Indonesia, Thailand and South Korea to turn to the International Monetary Fund for bailouts. The region has since accumulated more than $3.3 trillion of reserves, about half of the global total.
BOJ's Shirakawa
``I don't think a financial crisis will take place in Asia,'' Bank of Japan Governor Masaaki Shirakawa said yesterday. ``The situation of Asian economies is different from the time of the 1997-1998 crisis. They have plenty of foreign reserves.''
The Japanese central bank today added 2.5 trillion yen ($23.9 billion) to its financial system in its third day of fund injections, while Reserve Bank of Australia pumped in A$3.015 billion ($2.4 billion).
``There is a credit crunch everywhere, even in Japan, but it's relatively better here as Japanese banks are still okay,'' said Susumu Kato, chief economist in Tokyo at Calyon Securities, a primary dealer required to bid at government debt sales. ``Domestic institutions don't want to give money to foreign institutions, so the BOJ stepped in to stabilize the market.''
Lehman's bankruptcy, the sale of Merrill Lynch & Co. to Bank of America Corp. and the U.S. government bailout of American International Group Inc. this week has sparked concern of more financial failures, sending the cost of short-term credit higher in the U.S. and Europe. In Asia, money market rates have remained relatively low.
Asia Vs U.S.
The difference between what the Japanese government and banks pay to borrow yen for three months reached its lowest in six months. By contrast, the so-called U.S. TED spread expanded to the widest since Bloomberg began compiling the data in 1984.
The London interbank offered rate, or Libor, rose 19 basis points to 3.06 percent, the British Bankers' Association said yesterday. The increase was the biggest since Sept. 29, 1999.
Japan's banks and insurers, including Mitsubishi UFJ Financial Group Inc., have announced a combined 245 billion yen of potential losses tied to the collapse of Lehman, while lenders in China said they have about $384 million of exposure to the U.S. securities firm.
Potential losses of Japanese banks ``seem to be within the levels that can be covered by their profits,'' Bank of Japan's Shirakawa said. ``There's no concern that the latest events will threaten the stability of Japan's financial system.''
Thailand, which triggered the Asian financial crisis with the devaluation of its baht in July 1997, has no shortage of capital and the nation's lenders are ``strong and resilient,'' Tarisa said today.
Thailand's Tarisa
The banking industry is ``a lot more cautious and risk adverse ever since the 1997 crisis,'' she said. ``We had learnt from the crisis. I don't think there is any chance at all that one of our banks will come into problems.''
The exposure of local banks in the Philippines to Lehman is between 0.3 percent and 0.4 percent of their total assets, central bank Governor Amando Tetangco said in a Bloomberg Television interview today. Losses stemming from the holdings may hurt bank earnings though won't damage their capital, he said.
Australia's bank regulatory system is strong enough to give customers ``certainty'' about the state of their lenders, Prime Minister Kevin Rudd said even as he warned that it was a serious time for the nation's financial institutions.
IMF Bailouts
During Asia's 1997 financial crisis, Indonesia, Thailand and South Korea spent most of their currency reserves attempting to prop up their exchange rates after investors abandoned them. The IMF arranged more than $100 billion of loans to the three countries after their currencies collapsed.
``Emerging Asia should be relieved that, unlike the 2001 tech bubble burst and the 1997-98 financial crisis, the `action' has started elsewhere for a change,'' said Paul Gruenwald, an economist at Australia & New Zealand Banking Group Ltd. in Singapore. ``As a result, the region seems likely to pass through the current credit crisis relatively well.''
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
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