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Global Research

Macro
Asian Economics Where Asia stands
Rough guide to recent financial rescue measures
 The Asian policy response to the global turmoil is gathering
steam, with Vietnam and India the latest countries to cut rates

 While the region doesn’t suffer the same financial dislocations

as the West, growth concerns are prodding officials into action

 Expect further rate cuts and liquidity injections, but further

banking sector guarantees do not appear likely at this stage

Taking stock
21 October 2008 It’s hard to keep track of it all. Yesterday, India and Vietnam unexpectedly cut interest
Frederic Neumann* rates by 100bp each, revealing deep-seated concerns that the global credit crunch is not
Economist only raising financial risks but may also materially hurt economic growth. On Sunday, the
The Hongkong and Shanghai Banking
Corporation Limited
Korean government unveiled comprehensive measures to guarantee newly issued external
+852 2822 4556 debt by local banks and injected both dollar and won liquidity into the local market. With
fredericneumann@hsbc.com.hk such a dizzying array of new policies being unveiled in the last few weeks, we thought it
Prakriti Sofat* would be timely to provide a rough guide to the various measures announced so far, and
Economist
The Hongkong and Shanghai Banking
give our quick take on what lies ahead for Asia.
Corporation Limited, Singapore branch
+65 6230 2879
India and Vietnam joined China, Korea and Taiwan in cutting interest rates in surprise
prakritisofat@hsbc.com.sg moves in recent weeks. And more probably lies in store: in addition to further rate cuts in
Song Yi Kim* these markets, we expect Thailand and the Philippines to ease monetary policy before the
Economist year is out. In 2009, with growth taking a big hit in the first two quarters, especially due to
The Hongkong and Shanghai Banking
slumping exports, we expect further rate cuts in virtually all Asian markets, with again
Corporation Limited
+852 2822 4870 China, Korea, the Philippines, Thailand, and India at the forefront. So far, seven countries
songyikim@hsbc.com.hk have issued blanket deposit guarantees in the hemisphere, but we doubt that more will be
View HSBC Global Research at: forthcoming: most banking systems are flush with local liquidity and deposits are rising.
http://www.research.hsbc.com
*Employed by a non-US affiliate of Fundamentally, we remain of the view that Asia does not suffer from the same financial
HSBC Securities (USA) Inc, and is not
registered/qualified pursuant to NYSE dislocations seen in the West. As we mentioned previously (see How far down?, 9
and/or NASD regulations October), this should set up the region for an ultimately faster rebound once global
Issuer of report: The Hongkong and financial market uncertainties begin to abate. Therefore, with perhaps the exception of
Shanghai Banking
Corporation Limited Korea and India, most of the latest financial rescue measures are defensive in nature,
rather than indicative of elementary financial vulnerabilities. The primary concern of
Disclaimer &
policy-makers in Asia is to shore up growth. Other measures, such as blanket deposit
Disclosures
guarantees and emergency local liquidity injections, therefore appear unlikely across the
This report must be read
region, although a number of central banks may continue to provide dollar liquidity
with the disclosures and
directly into local markets to ease external funding strains.
the analyst certifications in
the Disclosure appendix,
and with the Disclaimer,
which forms part of it
 Macro
Asian Economics abc
21 October 2008

1. Overview of recent Asian policy responses to global financial turmoil

Deposit guarantee Reserve Policy rate Local liquidity Fiscal measures Stock market
requirement injection
Australia yes, blanket no change 100bp cut yes yes no
China no change cut by 150bp 54bp cut no yes yes
Hong Kong yes, blanket no change base rate cut yes no no
India no change cut by 250bp 100bp cut yes no yes
Indonesia yes, increase cut by 158bp 25bp hike no no yes
Japan no change no change no yes no no
Korea no change no change 25bp cut yes yes yes
Malaysia yes, blanket no change no yes no yes
New Zealand yes, blanket no change no yes no no
Pakistan no change cut by 200bp 100bp hike yes yes yes
Philippines no change no change no yes no no
Sri Lanka no change cut by 75bp no yes no no
Singapore yes, blanket no change shift to neutral yes no no
Taiwan yes, blanket cut by 75bp 37.5bp cut yes yes yes
Thailand yes, blanket no change no yes no yes
Vietnam no change no change 100bp cut yes no no
Source: Bloomberg, HSBC

2. Deposit insurance schemes in Asia

Australia issued blanket guarantee on all deposits with financial institutions for next 3 years and “term wholesale funding”
China deposits in the state-owned banks are implicitly guaranteed by the government
Hong Kong initially HKD100,000 per account, now blanket guarantee until 2010
India deposit insurance up to INR100,000 on all deposits of savings accounts, current accounts, recurring and fixed deposits in all
commercial or cooperative banks in India
Indonesia bank deposit guarantee now raised to IDR 2bn from IDR100m
Japan deposit insurance on current deposits, ordinary deposits and specified deposits on a maximum principal of JPY10 million plus
accrued interest per depositor per financial institution
Korea deposit insurance of principal and interest of insured deposits up to KRW50 billion per individual
Malaysia initially MYR 60,000 per depositor, now blanket guarantee until end 2010
New Zealand initially opt-in arrangement by FIs for guarantees of up to two years, now blanket guarantee
Philippines PHP 250,000 per depositor
Singapore initially guarantee up to SGD 20,000 to individual depositor per bank, now blanket guarantee until end 2010
Sri Lanka no deposit guarantee scheme available
Taiwan guarantee on all bank deposit of all banks, including all financial institutions, until end 2008
Thailand blanket guarantee for all deposit of all local and foreign financial institutions until Aug 2009
Vietnam Up to VND50mn per person
Source: National Sources, HSBC

3. Monetary and fiscal policy changes in the pipeline (HSBC forecasts)

Country Key targeted rate Current Latest end 2008e end 2009e Reserve requirement ratio Fiscal measures
China Lending Rate 6.93 -0.27 6.66 6.39 50-100bp further spending and tax cuts
Hong Kong Base Rate 2.00 -1.50 2.00 1.50 no change likely further spending and tax cuts
India Repo Rate 8.00 -1.00 8.00 7.50 cuts possible limited flexibility
Indonesia Reference Rate 9.50 0.25 9.75 10.00 no change likely expansionary 2009 budget
Japan Overnight Rate 0.50 0.25 0.50 0.50 no change likely more spending
Korea Call Rate 5.00 -0.25 4.50 3.50 cuts possible further spending and tax cuts
Malaysia Overnight Rate 3.50 0.25 3.50 3.50 no change likely limited flexibility
Pakistan Discount Rate 13.00 1.00 15.00 9.00 no change likely need fiscal consolidation
Philippines O/night Repo Rate 6.00 0.25 6.00 5.25 cuts likely to come further spending plans
Singapore Overnight Rate 0.38 N/A 1.40 1.80 no change likely Further spending and
handouts
Sri Lanka Reverse Repo Rate 12.00 0.50 12.00 12.00 no change likely limited flexibility
Taiwan Rediscount rate 3.25 -0.25 3.00 2.75 more cuts possible further spending plans
Thailand Repo Rate 3.75 0.25 3.75 3.25 no change likely further spending plans
Vietnam Base Rate 13.00 -1.00 13.00 11.00 no change likely Limited flexibility
Source: Bloomberg, HSBC estimates

2
 Macro
Asian Economics abc
21 October 2008

4. Stock and financial market support measures

China
19-Sep Beijing cancels stamp duty on stock purchases and allows the government fund Central Huijin to buy companies shares
State-owned Asset Supervision & Administration Commission (SASAC) encourages central state-owned enterprises to increase
shareholding of listed SOEs
25-Sep CSRC proposed changes to simplify share buyback approvals for listed companies, launch pilot program of margin trading and
short selling
5-Oct PBoC allows again issuance of corporate mid-term notes in interbank market and allows the raised money to be invested in stock
market for share buyback
India
6-Oct the Securities and Exchange Board of India removes restriction on issuance of P-notes with derivative as underlying asset and the
rule that P-notes could only account up to 40% of asset value held by foreign fund
15-Oct The government doubles the FII (Foreign institutional investment) limit in domestic corporate debt to USD6bn;
the central bank announces the extension of the special Fixed rate repo until the cumulative limit of INR200bn is reached to
enable banks to meet the liquidity requirements of mutual funds;
Indonesia
8-Oct stock market was shut down after morning session and continues to shut down on the 9th and 10th
9-Oct Government announces temporary scrapping of daily limit of shares buyback volume and allows shares buyback without
shareholders approval, but excludes state banks from buyback order
Korea
1-Oct Government bans short selling of stocks for the time being and raises daily ceiling on share repurchases to 10% from current 1%
13-Oct Financial Services Commissions said that it will relax rules on conglomerates' ownership of banks, allowing them to hold up to a
10 percent stake. Additionally, the National Pension Service and 61 other state-run pension funds will be able to acquire
commercial lenders with prior approval from the FSS
Malaysia
20-Oct government announces that it will double to MYR 10bn the size of the state owned fund Valuecap Sdn. to support the stocks
Taiwan
19-Sep Government announces that state-owned National Stabilization Fund is ready to buy stocks in the local stock market
30-Sep Financial Supervisory Commission bans short-selling on all stocks from 30th Sep to 14th Oct
6-Oct lowered transaction tax for stock index futures to 0.0000125% from 0.01% previously
12-Oct Financial Supervisory Commission limits the downside drop on the stock index to 3.5% from 7% previously with an effective period
from the 13th to 17th Oct 2008
FSC extends the ban on short-selling on all stocks till end of 2008 and authorized the National Stabilization Fund to continue to
operate
19-Oct Narrowed daily stock move limits to be retained at least until Oct 24
Source: Bloomberg, HSBC

5. Chronology of local liquidity and monetary policy measures adopted over past month
China
15-Sep PBoC cut reserve requirement ratio by 100bp to 16.5% and 1-year lending rate by 27bp to 7.2%
5-Oct PBoC allows again issuance of corporate mid-term notes in interbank market
8-Oct PBoC cut reserve requirement ratio by 50bp to 16% and 1-year lending rate by 27bp to 6.93%
Hong Kong
22-Sep HKMA injects HKD1.6bn into the banking system
24-Sep HKMA injects HKD3.8bn into the banking system
30-Sep HKMA enlarges the discount window mechanism to include USD assets as collateral for HKD liquidity
HKMA expands the duration of discount window lending from overnight to 3 months
HKMA raises the threshold for use of Exchange Fund paper as collateral for discount window borrowing from 50% to 100%
HKMA to lend banks term money up to one month when necessary against collaterals acceptable by the HKMA
HKMA announces FX swap between USD and HKD of various durations with banks when necessary
8-Oct HKMA changes base formula and cut base rate by 100bp to 2%
14-Oct HKMA provides blanket guarantee for bank deposits till 2010
India
30-Sep RBI pumps in cash to stop a run on ICICI Bank Ltd and boosts liquidity through its daily auction facility
6-Oct RBI cuts cash reserve ratio by 50bp to 8.5%
10-Oct RBI cuts cash reserve ratio by 150bp to 7.5%
14-Oct special fixed repo operations to banks to help ease mutual fund redemption pressure (INR200bn cumulative)
15-Oct the RBI cuts CRR by 100bp to 6.5%, announces farm loan waver scheme payments to the banks (INR250bn)
the RBI increases QFII limit for corporate bonds to USD6bn, oil companies will be allowed to exchange oil bonds for foreign
exchange, and banks will be able to tap offshore funding up to 50% of their tier-1 ratio from 25% previously
banks given access to funds to raise their capital adequacy ratio to 12% and allowed to pledge another 50bps of their SLR to lend
to mutual funds.
17-Oct the RBI to accept all sole bid at repurchase auction and adds INR2.5bn for 3 days at 9%
20 Oct RBI cuts repo rate in surprise move by 100bp to 8%
Source: HSBC

3
 Macro
Asian Economics abc
21 October 2008

5. Chronology of local liquidity and monetary policy measures adopted over past month (cont’d)
Indonesia
9-Oct Bank Indonesia cuts reserve requirement rule to 7.5%
13-Oct Government to guarantee bank deposits up to IDR2bn from IDR 100mn previously. Additionally BI announces that commercial
banks will be allowed to use their "performing loans" as collateral for short-term financing assistance from the central bank.
14-Oct BI lowers the reserve requirement for foreign exchange deposits for commercial banks as well as Islamic banks to 1% from 3%,
effective Oct 13th, in a bid to increase dollar liquidity.
BI extends the FX swap tenor from maximum 7 days to one month, effective Oct 15th. This is aimed at meeting temporary needs
for U.S. dollars so as to offer more room for banks or market participants to adjust their portfolios.
BI scraps limits on the daily balance of short-term foreign borrowings
Korea
30-Sep Government injects $10 billion in the local won-dollar swap market through the Exchange Stabilization Fund
6-Oct Government supplies $5bn to SME exporters with temporary dollar-funding difficulties via Korea Export-Import bank
9-Oct The bank of Korea unexpectedly cuts policy rate by 25bp to 5%
16-Oct BoK says will receive USD 10bn in USD by end of 08 from the National Pension Service due to unwind of 2005 swap agreement
17-Oct BOK announces it will engage in bilateral USD swaps with local financial institutions directly, rather than through intermediaries
The National Pension Fund to buy corporate and bank bonds worth of 10 trillion won by the end of 2008
19-Jan Government guarantees USD 100bn in newly issued external bank debt
Government to inject further USD 30bn in local market
Bank of Korea to inject KRW liquidity locally
Government to inject KRW 1trn into IBK to raise policy lending to SMEs
Malaysia
8-Oct BNM announces that it stands ready to provide liquidity, whenever necessary, to financial institutions under its purview
16-Oct the Malaysian government guarantees all Ringgit and foreign currency deposits with commercial, Islamic and investment banks,
and deposit taking development financial institutions regulated by BNM, effective immediately till 31st December 2010
access to BNM's liquidity facility will be extended to insurance companies and takaful operators
BNM said that it stands ready to guarantee interbank obligations of banking institutions if the need arose
Pakistan
13-Oct the State Bank of Pakistan cuts cash reserve ratio by 100bp to 8% and it will cut another 100bp to 7% on 11th Nov 2008
Philippines
30-Sep the BSP announces that the central bank is ready to inject liquidity if financial crisis dampens capital inflow and export growth
17-Oct central bank to engage in direct dollar lending to domestic financial institutions, accepting USD RoPs in repos
Singapore
13-Oct MAS says prepared to inject liquidity if required
14-Oct MAS says that it will take the necessary steps to ensure that banks in Singapore are not disadvantaged
16-Oct government decides to guarantee all SGD and foreign currency deposits of individuals and non-bank customers till 31st Dec 2010
Taiwan
16-Sep Central bank lowers reserve requirement ratio to range of 4-10.75% from 4.75-12% previously to release $6.2bn into the banks
25-Sep Central bank cut rates by 12.5bp to 3.5% and expanded access to discount window to insurance companies for 180 days
7-Oct Government announces full guarantee of deposits for all financial institutions until end of year
9-Oct Central bank cuts policy rate by another 25bp to 3.25% and cut rates by 10bp on 30/91/182 day certificates of deposits
Thailand
8-Oct the central bank keeps the policy rate unchanged at 3.75%
14-Oct Bank of Thailand reveals that it is likely to increase the disposal of its US dollar denominated holdings in the swap market to
counter further decline in Thai-baht term lending rate
Sri Lanka
13-Oct Central Bank of Sri Lanka cuts reserve requirement ratio on all rupee deposit liabilities of commercial banks by 75bps to 9.25%
effective from 17th Oct. This will inject LKR 7.5bn worth of liquidity into the system
CBSL increases the number of times that commercial banks and primary dealers can access the reverse repo window to 10 times
effective from 15th Oct, from 6 times previously
Vietnam
20-Oct State Bank of Vietnam cuts base rate by 100bp to 13% and reduces cap on lending rates to 19.5% from 21%
SBV cuts refinancing and discount rate by 100bp to 14% and 12%, respectively
SBV doubles interest rate on compulsory reserves to 10%
Source: HSBC

4
 Macro
Asian Economics abc
21 October 2008

Disclosure appendix
Analyst certification
The following analyst(s), who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject
security(ies) or issuer(s) and any other views or forecasts expressed herein accurately reflect their personal view(s) and that no
part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained
in this research report: Frederic Neumann, Prakriti Sofat and Song-yi Kim

This report is designed for, and should only be utilised by, institutional investors. Furthermore, HSBC believes an investor's
decision to make an investment should depend on individual circumstances such as the investor's existing holdings and other
considerations.

Analysts are paid in part by reference to the profitability of HSBC which includes investment banking revenues.

For disclosures in respect of any company, please see the most recently published report on that company available at
www.hsbcnet.com/research.

* HSBC Legal Entities are listed in the Disclaimer below.

Additional disclosures
1 This report is dated as at 21 October 2008.
2 All market data included in this report are dated as at close 21 October 2008, unless otherwise indicated in the report.
3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its
Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research
operate and have a management reporting line independent of HSBC's Investment Banking business. Chinese Wall
procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or
price sensitive information is handled in an appropriate manner.

5
 Macro
Asian Economics abc
21 October 2008

Disclaimer
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