Singapore banks suffered the sharpest falls in a wave of selling of regional bank shares yesterday as a result of growing investor worries over subprime-related losses in the US.
Banks in the island state have some of the biggest exposure to collateralised debt obligations by value among Asian financial institutions. But the city-state's three largest banks said potential losses caused by the credit market turmoil would be minimal, with some analysts suggesting that investors were over-reacting.
DBS Bank fell 4.6 per cent, United Overseas Bank fell 6 per cent and OCBC Bank was 5 per cent lower, dragging down the Straits Times Index by 3.7 per cent in its sharpest one-day decline in six years.
The sharp drop in the share prices followed Friday's statement from Singapore's central bank that warned local financial institutions to monitor their exposure to CDOs in what was seen as a precautionary measure. Government officials have also warned recently that Singapore's financial markets could be affected by problems in the US subprime market.
DBS Bank has one of the largest exposures among Asian financial institutions to structured products at $850m, while OCBC Bank revealed yesterday that it had $430m in CDO holdings. UOB said its CDO exposure was 0.3 per cent of total assets.
But Credit Suisse said the total exposure of Singapore banks to CDOs did not pose a threat to their financial stability because it represented a tiny share of their total assets. Taiwan insurers also have big exposures to CDO products. Shin Kong Financial, which has $1bn in CDO holdings, ended down 3 per cent. Taiwan Life Insurance also lost 3 per cent.
In Australia, Macquarie Bank, the country's biggest investment bank, tumbled 6.6 per cent after it said last week that retail investors in two of its funds face losses of up to 25 per cent.
But concerns remain that tighter credit conditions resulting from the US mortgage crisis could cool property booms in some Asian countries, with Chinese and Indian banks suffering share price falls yesterday for this reason.
There are also worries about the amount of CDO exposure held by asset management funds in the region, many of whom have not disclosed their holdings in the sector. OCBC said that one affiliated fund, Lion Capital Management, had S$5.7bn worth of CDOs, or 18 per cent of assets under management, but there had been no losses or downgrades by ratings agencies of the CDOs held by the fund.