Amro: Financial stability risks rising

Financial stability risks have risen amid a global monetary tightening environment, particularly because of the failure of Silicon Valley Bank (SVB) in the United States, thus markets are in for further volatility, according to the Asean+3 Macroeconomic Research Office (Amro).

The Singapore-based think tank pointed out that the sudden closure of SVB that set off a wave of concerns over a contagion triggered a sharp increase in risk aversion, which was further aggravated by the worries over the health of Credit Suisse.

“While the initial reaction of Asean+3 markets has been more muted compared with those in US and European markets, volatilities in the markets remain high,” said Amro, a macroeconomic surveillance group covering the Association of Southeast Asian Nations as well as China, Japan and South Korea.

Swift actions

Nevertheless, Amro said it does not see “an imminent systemic financial crisis thanks to swift actions by the authorities in the United States and Switzerland, which have curbed the spillovers and provided some support to the markets.”

The think tank also noted that—following the implementation of stricter global banking regulatory standards since the Global Financial Crisis of 2008—banks in the region and elsewhere have built up significant buffers including robust liquidity, capital and funding standards.

“That said, the risk of second- and third-order effects on regional banks could not be ruled out, especially if the situation around Credit Suisse, which is a Global Systemically Important Bank, worsens,” Amro said.

In the Philippines, authorities especially the Bangko Sentral ng Pilipinas as well as industry players were quick to assuage the public’s fears, saying that Philippine banks have no material exposure to SVB and another bank that failed—Signature Bank.

Based on AMRO analysis, compared to SVB, Credit Suisse appears to have more interconnected nodes with financial institutions in the Asean+3 economies, including banks and insurance companies from China, the Philippines, Korea, Indonesia, Malaysia, and Hong Kong.

The group warned that any further shock from the banking system or elsewhere could amplify the negative effects on markets, given the already fragile risk situation.

“In such a scenario, backstops provided by authorities — especially in jurisdictions of the source of the shock — will be critical in mitigating the spillovers to other markets,” AMRO said.