Asia regulators say banking system is stable after UBS-Credit Suisse deal

Regulators in Asia on Monday gave reassuring statements that their banking systems remained robust and stable after Swiss banking giant UBS agreed to buy rival Credit Suisse for $3.25 billion.

Swiss regulators played a key role in orchestrating that takeover, to stem a major banking crisis that would threaten the global system. The deal was announced before markets opened on Monday. Last week, Credit Suisse recorded its worst weekly decline since the outbreak of the coronavirus pandemic.

The development comes shortly after the collapse of Silicon Valley Bank, which led US regulators to freeze SVB’s uninsured deposits and offer new funding for troubled banks. The mass of headlines surrounding the global banking crisis has increased volatility and investors’ fears of a wider crisis.

The Hong Kong Monetary Authority said the city’s banking sector is robust with strong capital and liquidity positions. Credit Suisse’s operations in the city include a branch under the supervision of the HKMA and two licensed companies under the supervision of the Securities and Futures Commission.

“Everyone will open for business today as usual. Clients can continue to access their deposits with the branch and trading services provided by Credit Suisse for Hong Kong’s equity and derivatives markets,” the HKMA said.

“The total assets of Credit Suisse, Hong Kong Branch amounted to around HK$100 billion, representing less than 0.5% of the total assets of the Hong Kong banking sector. The exposures of the local banking sector to Credit Suisse are insignificant,” it added to. .

As of the end of February 2023, Credit Suisse was the ninth largest listed issuer of structured products in Hong Kong, accounting for about 4% of the total market in terms of market capitalization of outstanding units, the HKMA said.

In a similar move, the Monetary Authority of Singapore said Credit Suisse operations will continue in the city-state without “any interruption or restriction.”

Credit Suisse customers will continue to have full access to their accounts and “contracts with counterparties will remain in effect. The takeover is not expected to have any impact on the stability of Singapore’s banking system,” MAS said.

MAS added that UBS and Credit Suisse do not serve retail clients as their primary activities in Singapore are in private banking and investment banking.

The central bank said it will remain in close contact with Swiss regulators, UBS and Credit Suisse as “the takeover is implemented, to facilitate an orderly transition, including addressing any impact on employment.”

As for Japan, the country’s banking system is unlikely to be affected by the deal, said Cyrus Daruwala, managing director of IDC Financial Services.

“I think the exposure to a large wealth manager or an asset manager like Credit Suisse or UBS, generally speaking, would be about 4% of their portfolio,” Daruwala told CNBC’s “Squawk Box Asia” on Monday.

It is not “a significant amount,” he added. “I argue that Japan has been relatively sheltered, especially from Credit Suisse.”

Christopher Kent, assistant governor of the Reserve Bank of Australia, also stressed that domestic banks are resilient despite the global panic triggered by bank failures in the US

“Conditions in global bond markets have been strained recently following the failure of Silicon Valley Bank in the US,” he said in a speech on Monday.

“Volatility in the Australian financial markets has picked up, but the markets are still functioning and, most importantly, the Australian banks are undoubtedly strong.”

Banks are already well along with their bond issuance plans for the year and may delay “for a while,” Kent said. “While markets remain strained … Australian banks’ issuance will continue to benefit from the strength of their balance sheets.”

Overall, IDC’s Daruwala said banks in the region have “very, very little” exposure to Credit Suisse. “I don’t think it’s going to cause a ripple effect in Asia at least.”