Low risk of bank runs in Asia: analyst

Japanese banks are the most vulnerable and face flat NIM growth.

There is a very low risk that bank runs will occur anywhere in Asia, according to a commentary released by Morningstar Research.

Michael Makdad, senior equity analyst and Japan team leader for Morningstar’s wholly-owned Japanese subsidiary Ibbotson Associates Japan, noted the policy support of each government and the absence of problematic large institutions such as Credit Suisse as reasons for the low probability of bank runs.

“Rather than financial stability, the bigger concern for Asian bank shares, in our view, is the earnings outlook,” Makdad said.

Amongst markets, Japanese banks are noted to be most susceptible to worries over financial stability in the US or Europe due to their greater linkages with these regions.

“For Japanese banks, the developments are negative because Japanese bank shares rose substantially in the past year on hopes for higher Japanese yen interest rates that now seem misplaced. Therefore, we now think Japanese banks’ net interest margins, or NIMs, may stay flat or fall instead of rising as many in the market had hoped,” Makdad said. 

After Japan, Korea’s banking system is most vulnerable due to their dependence on having access to US dollar liquidity. Makdad expects net interest margins to start narrowing in the second half of 2023.

Singapore and Hong Kong banks, on the other hand, still incorporate expectations of NIMs staying at wide levels, which could prove to be overly optimistic now if the Fed were to pivot to interest rate cuts. Also, if the global economy moves toward recession, banks everywhere will face higher credit costs.