One bank in Asia has cut credit lines to major French lenders while five other banks in Asia are reviewing trades and counterparty risk as worries about the exposure of French banks to peripheral euro zone debt mounts, banking sources told Reuters on Thursday.
Rumors on Wednesday that France was to lose its AAA rating, later denied by ratings agencies, helped trigger the biggest widening in the European credit default swap index since the credit crunch in 2008.
That sudden rise in risk perception, combined with sharp share price falls in French banks, prompted some banks in Asia to speed up reviews of counterparty risk and look at whether they should cut exposure to European lenders, sources at each of the six banks in Asia said.
Contacted about the moves by the banks in Asia, a spokeswoman for top French lender BNP Paribas in Paris said: "We never comment on market rumours."
Societe Generale had no immediate comment to make while a spokeswoman for Credit Agricole, which will publish its second-quarter earnings later in August, said the bank would not make any comment.
The banks in Asia and the sources -- a mix of risk officers, senior traders and loan bankers -- could not be identified because of the sensitive nature of the information.
The head of treasury risk management for Asia at one bank in Singapore -- which has a significant presence across the region -- said their credit lines to large French banks had been cut because of the perceived risks in lending to these counterparties.
"We've cut. The limits have been removed from the system. They have to seek approval on a case-by-case basis," the treasury risk official said. The official declined to name the French banks.
Societe Generale put out a statement on Wednesday denying rumors about its financial health after its shares fell by as much as 21%.
The statement failed to fend off much of the market's concern with its shares ending the day 15% lower, taking losses since early July to more than 50%.
A senior credit trader in Singapore said that when a bank's shares fall that sharply their risk officer will automatically look at how much exposure they have to that lender.
SocGen shares were down 4% by 6:30 a.m. EDT on Thursday. BNP was down 5% while Credit Agricole was largely flat.
Banks' heightened responses could exacerbate the market strains if they all acted simultaneously with portfolio-at-risk modeling, analysts said.
