Moody’s Says Australia, N.Z. Banks Most Exposed to Europe Crisis

Banks in Australia, New Zealand, South Korea and Vietnam are among the “most exposed” in the Asia-Pacific region to a sudden worsening of Europe’s sovereign debt crisis, Moody’s Investors Service said.

The Australian, New Zealand and Korean banking systems’ dependence on foreign funding puts them at risk of increased costs in the event of wholesale market stress, Stephen Long, a managing director at Moody’s financial institutions group, said in a statement. Vietnam’s weak financial system and dependence on cheap dollar loans subjects its banks to tightening foreign- currency liquidity.

These banking systems are “more vulnerable to the first- round impact of a further worsening of the euro area crisis than other systems in Asia Pacific,” Long wrote after Moody’s released a report the topic. “Our base case is that the resilience of banks in Asia Pacific will generally persist. However, the risks to that scenario have increased, warranting a closer examination of how banks could be affected under more adverse scenarios.”

Australian and New Zealand lenders’ proportion of total external funding stands at 19 percent and 16 percent respectively, New York-based Moody’s said. Korea’s banking system has a foreign currency-to-deposit ratio of 328 percent and relies on external markets for 9 percent of its funding, the report said.

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