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If key European Banks start deleveraging in Asia ...
The largest borrowers from European banks (particularly UK banks) are Australia, Hong Kong SAR, Korea, Malaysia, New Zealand, Singapore, and Taiwan Province of China, while China, India, and the economies of South East Asia generally have smaller liabilities.
For most regional economies, the nonbank private sector, i.e., businesses and households, are the main recipients of credit from foreign banks as a whole, especially in areas of trade credit and specialized project financing.
However, in several Asian economies, lending by local subsidiaries and branches were funded primarily by local deposits. Thus, reducing potential deleveraging pressures.
In Australia, New Zealand, Korea, Singapore, Hong Kong SAR and Taiwan Province of China, the domestic banking sectors are relatively more reliant on European banks for wholesale funding, thereby increasing their vulnerability to deleveraging through the financial system.
Overall, Asian economies should be self-reliant considering the following factors: vigorous policy response, healthy balance sheets, liquidity guarantee, expanding insurance, low debt-to-equity ratios and lastly but equally important, they have healthy local banking systems.