Asian Authorities Expand Deposit Guarantees

By ALEX KENNEDY / AP WRITER

SINGAPORE — Authorities across Asia scrambled this week to expand guarantees on bank deposits in a bid to assure nervous savers that financial turmoil in the US and Europe won't wreak havoc on the region's banks.

Singapore and Malaysia were the latest to offer protection, guaranteeing Thursday all local and foreign currency deposits until the end of 2010. The moves followed similar measures earlier this week in Australia, New Zealand, Indonesia and Hong Kong.

Government officials and analysts say the guarantees are meant to pre-empt the possibility of a rumor-sparked bank runs, rather than a sign of fundamental weakness in the region's banks, which are largely better capitalized and have less debt than their US and European counterparts.

"I don't think there's an issue with the soundness of the Asian banking system," said Kit Wei Zheng, an economist at Citigroup in Singapore. "But nervousness can be a vicious cycle and a self-fulfilling prophesy no matter how unjustified, so you want to eliminate even the chance of something happening."

Elsewhere, Ireland, Germany and Greece have also recently moved to guarantee all deposits in an effort to shore up investor confidence.

Asia's financial system has weathered the turmoil in the global credit markets so far without the billion-dollar bailouts that have roiled the US and Europe in recent months.

But investors and savers remain nervous. A rumor spread by text message triggered a brief run on Bank of East Asia in Hong Kong last month, and investors in the city and Singapore have protested losses in bonds linked to bankrupt US brokerage Lehman Brothers.

Once countries in the region began to expand guarantees on deposits this week, other regional governments and central banks felt pressure to follow suit, or risk seeing capital flee to countries with such guarantees.

"I certainly don't think Malaysia on its own has any need to introduce this, but because Singapore and other neighboring countries are introducing it, Bank Negara (central bank) really had to," said Nazir Razak, chief executive at CIMB, Malaysia's second largest banking group.

Singapore faced a similar dilemma when regional financial rival Hong Kong on Tuesday offered unlimited guarantees on deposits for all licensed banks, up from HK$100,000 (about US$7,800). Singapore had previously ensured deposits only up to 20,000 Singapore dollars (US$13,500).

"Without the blanket guarantee, Singapore's competitive position as an international financial center would have been seriously challenged, especially as a wealth management hub," Kit said. "Under the current environment of heightened anxiety, a shift of deposits to Hong Kong could not have been ruled out, especially those of high net worth individuals."

Elsewhere in Asia, Japan has a guarantee on bank deposits of up to 10 million yen (US$100,000). There has been some talk since the US financial crisis hit that the guarantee should be raised to unlimited, but government officials have said that's not needed as Japanese banks had little exposure to the US subprime mortgage problems.

China began developing a deposit insurance program following the Asian financial crisis of the late 1990s. The system has yet to be enacted as law, although the government customarily has covered the commitments of failed financial institutions, most of which are state-owned.