There’s a strong connection between France and Asia, and it’s not just about Asian nouveau-riche fondness for bottles of Bordeaux. It’s about money.
French banks are big lenders to Asia, so when French banks are hunkering down, they are less likely to finance investments and lending, especially in places such as Hong Kong, South Korea and Singapore.
The pain was made clear in markets Wednesday. France’s second-largest bank, Societe Generale, saw its stock plummet 15%. Credit Agricole fell 12%, and BNP Paribas SA declined 9%.
For Asia, if French banks are forced to lick their wounds and retreat from foreign outposts, it means less lending and fewer bankers renting expensive houses on Hong Kong’s Peak.
According to the Bank for International Settlements and Nomura, French bank lending was equivalent to 1.4% of GDP in Asia at the end of 2010.
That doesn’t sound like much, but drill down, and you see the problem magnifying. In financial hubs Hong Kong and Singapore, French banks lend 12% and 9%, respectively, of GDP. To South Korea and Taiwan, it’s roughly 3%.
It’s not just a French problem: What’s happening in France won’t stay in France, given the shared burden among euro-zone countries. So throw Germany and the rest of the euro-zone banks into the mix, and the numbers look even more dire. (And remember, this doesn’t include the U.K., which is outside the euro zone but has its own burning problems.)
Euro-zone lending to Singapore is 26% of its GDP and 24% of Hong Kong’s. For South Korea and Taiwan, it’s 6%, and for Malaysia, it’s 5%. In India, it’s 4%, but because the country, unlike most of the rest of Asia, runs a current account deficit, it’s more vulnerable to external credit crunches.
It’s worth noting that China is somewhat insulated, with lending from the euro zone accounting for just 1.2% of GDP.