Large Asia-Pacific banks raise liquidity buffers in Q1 amid global uncertainty

Large Asian banks, especially those based in China, increased their liquidity coverage ratios in the first quarter from a year ago, putting themselves in a stronger position amid the global economic uncertainty.

Chongqing Rural Commercial Bank Co. Ltd. had the highest liquidity coverage ratio (LCR) among Asia-Pacific banks that reported first-quarter numbers, according to data compiled by S&P Global Market Intelligence. The Chinese lender's ratio rose 33 basis points (bps) year over year to 298.57% in the period. Another Chinese lender, Bank of Jiangsu Co. Ltd., had the third-highest LCR, up 34 bps to 237.76%.

The data includes Asia-Pacific banks covered by S&P Global Market Intelligence that reported first-quarter LCRs, which had over $100 billion in assets as of March 31.

"LCR is gaining stronger attention from the market these days after a string of collapses of the US regional banks," Takahide Kiuchi, an economist at Nomura Research Institute, told S&P Global Market Intelligence via telephone. "The higher LCR at Chinese banks would prevent a financial crisis from damaging those banks."

READ MORE about the liquidity crunch and the fallout for the financial sector in our new Issue in Focus.

Liquidity stress

LCR measures a bank's ability to withstand 30 days of liquidity stress. Banks must hold high-quality liquid assets at least equal to expected net cash outflows. Basel III rules require banks to hold a 100% minimum ratio.

Banks worldwide faced stresses after the failures of two midsize US banks in March. Credit Suisse Group AG's stock plunged in March after its biggest investor said it could not provide more capital, prompting a takeover from rival UBS Group AG in order to avoid further market panic.

Asia-Pacific, meanwhile, has remained a bright spot in the global economy. S&P Global Ratings cut its 2023 Asia-Pacific growth forecast to 4.3% but said in a Feb. 6 report that "downside risks affecting financial institutions in Asia-Pacific may be less severe than in some other regions."

A crisis may not hit Asian banks as hard as US and European counterparts because Asia's rate hikes have been milder, Makoto Kikuchi, CEO of Myojo Asset Management, told Market Intelligence. "Asian banks don't shoulder such big unrealized losses [from their investment] that eat away at their assets," Kikuchi said.

Monetary policy

China's central bank has maintained its policy easing bias to support economic recovery from COVID-19, while the Bank of Japan promised to keep its ultraloose policy under new governor Kazuo Ueda.

"It looks like Asian banks get stronger support from the governments than US and European banks," possibly strengthening credit, Shunsuke Oshida, head of credit research at Manulife Investment Research Japan, told Market Intelligence. "But a single credit indicator like LCR or [common equity Tier 1] won't always prove that a bank is creditworthy enough." Credit Suisse had a higher common equity Tier 1 ratio than many Japanese banks.

Among large banks reporting lower LCRs, Indonesia's PT Bank Mandiri (Persero) Tbk fell 31 bps year over year to 186.70% but remained in the top six. Bank of Chongqing Co. Ltd.'s ratio dropped 26 basis points to 270.78%, but was second highest in the region.

Gains in LCRs were broad among Asia-Pacific banks. Midsize banks with $10 billion to $100 billion in assets also showed widespread gains, according to Market Intelligence data.