Bangkok--5 Nov--Moody's Investors Service
Moody's Investors Service says the recent expansion of deposit guarantees in Hong Kong (Aa2) and issuance of blanket guarantees in Singapore (Aaa) are highly unlikely to have any impact on their sovereign creditworthiness.
Taiwan (Aa3) and Malaysia (A3) have also issued blanket deposit guarantees, but both countries may -- in contrast -- be subject to incrementally higher fiscal risk.
However, the expected weakening in government finances in these cases is hypothetical and should be mild and temporary; as a result, no adverse impact on their sovereign ratings or outlooks is expected.
The comments were contained in a just-released Moody's report which examines the make-up and possible impact of the guarantees in Asia.
Against a backdrop of exogenous liquidity shocks, the guarantee schemes are designed to instill confidence and ensure a level playing field, the report says. They are expected to forestall any volatile or destabilizing deposit flows between or within banking systems -- from weaker toward stronger, or state-owned, banks.
A less prompt or a more ad hoc approach might have run the risk of heightened banking sector and economic instability, the report says.
In terms of common strengths, the report says that all four economies have current account surpluses and are net creditor nations with substantial foreign currency reserves. As a result, they are unlikely to be severely impacted by prolonged de-leveraging.
Moreover, their banking systems' net foreign asset positions are also sizable, although this does not imply that their financial systems are immune to a prolonged tightening of US$ liquidity.
Furthermore, their monetary frameworks have considerable maneuvering room to manage domestic liquidity, more comfortably than many other comparably rated or regional emerging markets, the report says.
The report is entitled "Moody's: Larger Deposit Guarantees Do Not Affect Sovereign Ratings in Asia." It is available on www.moodys.com
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