Bangkok--18 Jun--Moody's Moody's Investors Service says the industry and ratings outlooks for the banking systems in North Asia -- China, Hong Kong, Taiwan and Mongolia -- are stable. The exception is Korea, where the industry outlook is negative as -- among other factors -- liquidity management and slower economic growth will challenge the banks' management teams. Nevertheless, the outlook for Korean bank ratings is stable. "The sub-prime crisis and ensuing credit crunch have been relatively minor issues for the region," says Deborah Schuler, a Moody's Senior Vice President, adding, "Asia's sub-prime exposures have been small and the exceptionally strong level of earnings recorded for 2007 have kept losses well contained." Schuler's assessment is contained in the latest version of Moody's annual Asia Banking Outlook, which looks at a total of 15 regional systems, and has been put together by Moody's Financial Institutions Group for Asia Pacific. "Furthermore, when looking at the region as a whole, various mitigating factors are serving to cushion the impact on the banks of the current credit crunch, the sub-prime crisis, slowing global economies, and rising inflation," says Schuler. "Primary among them are the strong underlying growth rates of the Asian economies, the very limited involvement of most regional banks in the global capital markets, and their generally healthy financial conditions as they face this difficult economic period," says Schuler. "When we look at the reasons for the stable industry outlooks in North Asia, in the case of China, the banks' financial fundamentals have improved due to recapitalizations and reductions in problems loans, while in Hong Kong, the banks benefit from very experienced management teams," says Schuler. "In the case of Taiwan, the macro-economic environment is stable, although it warrants close monitoring, and in Mongolia, the banking system is benefiting from a natural resources-driven boom," says Schuler. "At the same time, the risk positions of Chinese banks must undergo further enhancement, and we note that in Hong Kong, the banks are close to, it not at the top of the credit cycle," says Schuler. "And in the case of Korea, a mitigating factor is that unlike the 1997 Asian financial crisis, bank liabilities, including their borrowings, are primarily in local currency and show medium-term tenors," says Schuler. "By contrast, massive short-term foreign currency borrowings created the problems of a decade ago." Looking ahead, for the region's banking industries, the coming 18 months will mean slower loan growth and a moderate increase in NPLs, currently at cyclical lows, the report says. If irrational competition does not interfere, the higher cost of funds will be passed through to borrowers and the banks will be better able to earn the risk premiums they deserve in most markets. And while banks in some Asian economies will manage in 2008 to exceed the record earnings of 2007 --- for example, those in China --- higher funding, operating and credit costs will likely take a bite out of income in 2009. The region's very high and, in many countries, rising levels of single-borrower concentrations have also increased asset quality risk, the report says. The credit crunch has brought many larger corporations back from the debt capital markets to the banks for their borrowing needs. Generally, these are higher quality credits, but even large companies can occasionally fail spectacularly and the economic environment promises to prove challenging. The report, entitled "Asia Banking Outlook 2008", can be found at www.moodys.com.