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Friday, June 24, 2011

Australian, Korean banks vulnerable in Greek debt crisis




AUSTRALIAN and South Korean banks are the most exposed in Asia to Europe's debt crisis given their large dependence on offshore wholesale funding markets, a senior official at Fitch Ratings said today.

While the direct exposure is low, if the Greek debt crisis implodes and spurs a major dislocation in global credit markets, Australia and South Korea's banks and economies would suffer the most, said Andrew Colquhoun, head of Asia-Pacific sovereign ratings.

"Among the countries in Asia I would regard as relatively more exposed are both Korea and Australia, who have an issue of short-term and long-term external debt of the banking system," he told Dow Jones Newswires on the sidelines of a conference in Sydney.

"If the banks found it more difficult to refinance that debt, then there could be repercussions for the economies," he said, adding "quite a lot" of risk still remains in the process to firm up a second bailout package for Greece.

Australia faces some domestic issues too, with a housing market that looks "overstretched" and if interest rates were to go much higher to contain a mining boom, stress would soon become evident among borrowers, the Fitch analyst said.

After the remarks, the Australian dollar fell 20 points to reach a session low of $US1.0513, before recovering to $US1.0535 late in the day.

Australia's four biggest banks have in recent years leaned heavily on foreign currency borrowing and were among the biggest issuers of debt in the world using their respective governments' funding guarantees during the financial crisis.

Slower asset growth and still-firm demand for deposits is reducing Australian banks' reliance on wholesale borrowing to an estimated $100 billion from around $160bn in recent years, while house prices have cooled.

WSJ
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