Subprime crisis exposure wakes up risk control
Updated: 2008-03-17 11:44
In only three months share prices of Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB) and Bank of China (BOC) have stumbled 29 percent, 27 percent and 21 percent respectively last Friday from the first trading day of 2008.
Investors were scared.
A meltdown in the US subprime mortgage market triggered a global credit squeeze that has roiled stock markets over the past few months, in which the banks owning subprime-related assets are standing in the breach.
Citigroup, Merrill Lynch and UBS have lost $9.8 billion, $9.83 billion and $11.4 billion respectively in the fourth quarter of 2007, and the Chinese banks owing the subprime assets - ICBC, CCB and BOC- haven't dodged the crisis which has dragged down their stocks and made it difficult for the banks, which bought the subprime debts to resell them as their value dropped with serial defaults.
Limited impact
However, the depth of the subprime crises in the Chinese financial market will be limited and the impact on ICBC, CCB and BOC will not be significant, claims research reports by Zhao Jun of Southwest Securities, Yu Cong of Century Securities and Wang Qian of Industrial Securities.
Of the three banks, BOC and ICBC were the top two investing in the US subprime mortgage market.
The analysts claim the losses of the banks from the subprime debt will be very limited, since the three only own US$10.237 billion of subprime assets, accounting for less than 1 percent of their total assets, which is not significant enough to impair performance.
