European Banks' Exposure to China, Hong Kong, Taiwan: a Snapshot

DBRS Morningstar has published a commentary looking at European banks' exposures to China, Hong Kong, and Taiwan.

Key highlights include:

Large European banks have limited direct China-related exposures.

Global European banks with an international footprint and diversified business lines have more direct exposure, as well as banks located in countries that are export driven with close trading ties with China. Meanwhile, HSBC and Standard Chartered stand out with material credit exposure given their significant presence across Asia.

However, beyond the direct exposures, China is an important global trade partner. In a scenario of an escalation in tensions surrounding Taiwan's status, indirect risks would likely have significant economic and financial consequences.

"The operating environment has become increasingly challenging for European banks with high inflation and rising interest rates amid increased geopolitical tensions", said Vitaline Yeterian, Senior Vice President, Global Financial Institutions at DBRS Morningstar. "Meanwhile, China is experiencing a slowdown with its property development sector under pressure. However, the majority of large European banks in our sample have limited direct China-related exposure, although global European banks have some exposure. More importantly, beyond the direct exposures, China is an important global trade partner. In a scenario of an escalation in tensions surrounding Taiwan's status, indirect risks would likely be significant, while funding strategies and continuity plans would also be key considerations."