Bangkok--22 Apr--Fitch Ratings Fitch Ratings has today commented, following a review of the major banks in Asia ex-Japan and their exposure to subprime RMBS and other structured credit products, that the banks in aggregate have only a modest total exposure to subprime-related securities, CDOs, SIVs and other structured credit investments. Total subprime exposure of the banks surveyed by the agency at end-2007 was just under USD9 billion, investments in non-subprime CDOs and RMBS just under USD13bn and in SIVs USD1.3bn for a total of USD23bn. Against this amount, the banks had taken charges of USD5.8bn, or a markdown of 25%. Against subprime and SIV exposures, the markdown was higher, at 42% and 59% respectively; against other CDOs and RMBS, which the agency has defined broadly, was lower at 11%. Fitch notes wide differences between banks in different systems: Singapore banks, for example, have written down close to 90% of their subprime exposures, as has Woori Bank in Korea; whereas the Chinese banks have made markdowns ranging from 30% at Bank Of China (which has RMBS investments) to 63% at China Construction Bank, which holds some subprime-backed CDOs. The loss rates on investments in SIVs have been high, most in the range of 45%-75%, reflecting the fact that many Asian banks, particularly in Hong Kong and Taiwan, had invested in capital notes, which are in effect deeply subordinated, but on which the risk of loss initially appeared remote as they were issued by SIVs established by large US and European banks and insurance companies. Fitch believes that while potential losses on subprime exposure are generally well reserved, further valuation losses may be booked on CDOs, SIVs, as well as on US "Alt A" mortgages, which are better quality than subprime mortgages but are now suffering sharply rising delinquencies. However, for most Asian banks the scale of these should be modest in relation to their earnings and capital. Hence, Fitch has not changed its conclusion that the direct impact on Asian banks would be limited. The indirect effects are being manifested in slower economic growth in Asian economies under the influence of slower global growth and the likely US recession in H12008. Fitch has recently revised its forecasts for global economic growth to under 3% for 2008, 1.0% for the US, 1.7% for the Euro area and 1.3% for Japan. Estimates for Asia have also come down - to 7.8% including China and 5.9% excluding China. Growth rates for Asian countries still range from moderate to strong and hence still offer a broadly favourable environment for banks. However, combinations of slower growth, higher interest rates, falling asset prices and some weakening in credit quality will pose challenges for banks in key markets such as China and India. Major Indian banks have revealed some structured credit investments but none have reported any subprime exposure and the bulk of their involvement is in CDS (Credit Default Swaps), where the ultimate risk is Indian corporate credits. Only one bank, ICICI, has to date booked significant mark to market losses as it has a USD600 million CDO portfolio referencing foreign corporate credits. Indian banks have not been unscathed by the credit crisis but stand to incur real losses only if corporate default rates rise significantly. Contacts: David Marshall, Hong Kong, +852 2263 9911/ [email protected]; Ambreesh Srivastava, Singapore, +65 6796 7218/ [email protected]; Charlene Chu, Beijing, +86 10 8567 9898 ext 112/ [email protected]; Peter Tebbutt, Hong Kong, +852 2263 9966/ [email protected]; Jonathan Lee, Taipei, +88 62 8175 7601/ [email protected]; Vincent Milton, Bangkok, +662 655 4759/ [email protected]. Media Relations: Lisa Lim, Singapore, Tel: +65 6796 7214; Shivani Sundralingam, Singapore, Tel: + 65 6796 7215. Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site. 101 Finsbury Pavement, London, EC2A 1RS