The Indian banks, along with the Chinese counterparts, with significant exposure to the realty and home mortgage segments are more susceptible than other Asian banks to the volatility in the global market.
According to Standard and Poor's, their operations in equity may also be impacted by the gloom in the global markets. Asian equity markets are influenced by the performance of global markets, which has been amply and repeatedly demonstrated.
The market volatility in the past week is perhaps a harbinger of the future. "Even fortunes of local property markets are linked to the performance of the capital markets," S&P said in a report titled "Asian banks bracing for triple whammy of write-downs, tightening markets, and economic slowdown".
These linkages are important for banks as equity markets are a source of trading and fee income streams. Hence, a reversal of the strong rally has the potential to suppress earnings of Asian banks, it said.
A significant decline in property prices would hurt the quality of commercial real estate and residential mortgage portfolios of Asian banks.
Eventual losses would vary across the markets depending on the proportion of portfolio exposure to property, the effectiveness of risk management systems, and the length and extent of the slump in the respective property markets. "Banks in China, Singapore and India are relatively more susceptible than others in the region," S&P said.
Banks in Asia have to contend with sub-prime write-downs, tightening credit markets, and the ailing US economy. But it is the US economy's slowdown that could potentially deliver the significant blow," it said.
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