PRA asks banks to test Asian links

The Prudential Regulation Authority (PRA) has requested that British banks assess how they would perform in the event of a crash in Asia, highlighting the strong trade links the UK now enjoys with countries such as Japan.

Although China's emerging economy and Hong Kong's continued innovation have made both countries enjoy a great deal of prosperity in recent years, the possibility still exists for an Asian downturn, which could have a major impact across the globe.

Banks have been asked to carry out detailed work on how they would be impacted by a collapse in stock market and real estate in the country, reports the Telegraph.

HSBC published the criteria of last year's stress test in its latest report, with scenarios put forward by the PRA including a halving in Chinese and Hong Kong property prices, a drop in equity values across the two markets and a slump in China's impressive economic growth.

Officials at the banking regulator are understood to have imposed a similar test on Standard Chartered, which is also highly exposed to the lucrative Asian market.

Stuart Gulliver, chief executive of HSBC, recently admitted that there are "pockets of pressure" in the Chinese economy but expressed his optimism for the future.

However, both his organisation and Standard Chartered have underperformed compared to some of their key rivals in recent months, with some analysts pointing to the under par economic situation in Asia as one factor in this slow-down.

Sharmila Whelan of Asianomics told the newspaper: "Banks have been lending directly and through trade finance in particular, which has grown rapidly as borrowing conditions have tightened in China and corporate balance sheet liquidity has deteriorated.

"There has been much talk about borrowings being hidden by Chinese companies through inflated export earnings originating from Hong Kong."

The impressive export figures traditionally recorded by China may no longer be enough to keep the country in a strong position, concluded Ms Whelan.