Moody’s says Asian bank single-client exposures above N America

Singapore, June 25, 2009 -- Moody's Investors Service says that its recent
survey of single-client exposures at banks in Asia (ex-Japan) shows their
credit portfolios as significantly more concentrated than those in North
America.

"Such higher concentrations are due mainly to the region's banks
demonstrating greater importance -- as opposed to North American
institutions -- to the financing needs of their business communities,
given the less-developed state of the financial markets in which they
operate," says John Tham, VP/SCO and author of the report for Moody's
financial institutions group in Asia Pacific.

"The Moody's granularity survey for Asian banks sought to identify the
large credit exposures which represent potential sources of volatility in
earnings and asset quality, and therefore are important considerations
when assigning ratings," says Tham.

"In terms of methodology, it was similar to those conducted before in
North America, and specifically in Asia, it involved comparing the banks'
20 largest exposures and 20 largest exposures rated below A3 (or Moody's
equivalent) to their core earnings (pre-tax pre-provision profits, or
PPP), equity and tangible common equity (TCE)," adds Tham.

Moody's approach of comparing large exposures against PPP is consistent
with its traditional view that core earnings -- rather than capital --
are the first line of defense against losses. However, Moody's further
recognizes that reviewing large exposures to capital is also important
because earnings can be impacted by non-recurring items.

According to the data from the survey, median single-client exposures in
2008 appeared to be rising, particularly when measured against core
earnings. While there were higher exposures in some instances, PPP was
also generally lower.

If debt market conditions weaken again after their recent improvement,
larger corporations could be channeled back to the banks, particularly
local institutions as a number of foreign banks rein in lending -- or
exit Asia -- to preserve capital.

Moreover, the Moody's survey highlights that increases in credit
exposures would need to be carefully balanced with PPP, capital levels
and robust risk management.

The findings also show that stronger banks typically have smaller exposure
concentrations to borrowers rated below A3, although Moody's notes that
lenders in riskier and therefore lower rated operating environments
seldom have the luxury to finance groups rated single A or better.

Furthermore, the survey results illustrate that the large- (US$35-99bn)
and medium-sized banks (US$10-34bn) have higher concentrations than the
very large (>US$100bn) and small banks (<US$10bn). Moody's believes this
former group was able to maintain, or in some instances grow, their
credit exposures as their customer-funded profiles largely shielded them
from the credit crunch.

Lenders in the very large group -- of which there were meaningful numbers
of wholesale-funded banks -- were able to lower the size of their
exposures or at least rebalance them with higher-quality credits.

Smaller institutions typically have a commercial/SME client orientation
and are somewhat constrained by the size of their capital to support
large corporate loans without testing single borrower regulatory limits.

The report is entitled, "Annual Survey of Asian Banks' Single Client
Exposures". It can be found at www.moodys.com.

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