A Goldman Sachs report warns the global phenomenon could filter into the mainland as H-share banks - particularly the Bank of China (3988) - may have exposure to subprime securities.

So far, BOC and Industrial and Commercial Bank of China (1398) have been left largely unscathed by the US crisis, announcing minimal losses yesterday.

BOC, the country's largest foreign- exchange lender, said it will book "insignificant" losses on subprime investments in the first half, as it had less than 10 percent of its overseas bond investments in asset-backed and mortgage- backed securities as at the end of 2006.

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Luo Nan, BOC's head of investor relations, told Bloomberg that its holding of subprime loans was even smaller.

ICBC also has "negligible" investments in US subprime loans, which should have no impact on the company's profit, the bank's board secretary, Pan Gongsheng, told Bloomberg.

But Goldman Sachs said there could be some exposure of US subprime mortgage-backed securities and collateralized debt obligation at mainland banks, especially those listed in Hong Kong, which have modest foreign exchange investments after their H-share offerings.

This would include BOC, given its large US-dollar securities investment portfolio.

Goldman Sachs said the financial impact from potential losses related to mortgage-backed securities should be "manageable with the sheer asset size earnings power of H-share banks," and believes it could be a litmus test to various banks' treasury risk management reforms.

Yesterday, Germany became Europe's most high-profile casualty of the credit crunch as IKB Deutsche Industriebank's shares fell sharply by 15 percent after a 3.5 billion euro (HK$37.45 billion) rescue by other banks failed to calm investors' nerves.

Taiwan was also hit by the subprime meltdown, with Taiwan Life Insurance reporting losses of NT$428 million (HK$101.9 million) in the first half through its investment in the Bear Stearns High Grade Credit Structured Strategies fund, which filed this week for bankruptcy protection.

Shares of Shin Kong Financial Holding, a Taipei-based financial services company, fell 5 percent to NT$35.50 amid concerns over subprime exposure.

But the subprime fallout is not expected to affect Hong Kong, according to Hong Kong Monetary Authority chief executive Joseph Yam Chi- kwong, who said very few local financial institutions possess subprime- related products.

Meanwhile, Asian Development Bank president Haruhiko Kuroda does not expect the turmoil to hurt Asian economic growth. He said the ADB expects to raise its Asian-region growth estimates at a September briefing.

"Although the subprime loan problem is a difficult one, it will not affect the entire financial sector in the United States, and will not cause a recession in the US economy," Kuroda said.

The International Monetary Fund echoed this view.

"The most likely scenario is a soft landing, with growth recovering and inflation easing, but risks remain. Consumption could be weaker and financial markets conditions could tighten rapidly," the IMF said.

Bear Stearns said the sharp sell-off in global credit and equity markets triggered by the collapse of two of its hedge funds was unlikely to derail the global economy.

BOC Hong Kong's (2388) latest monthly economic review said market worries sparked by the US subprime crisis were behind the recent wave of market turbulence, noting that although global financial markets are strongly supported, major volatility remains possible even at times of "benign economic growth."

Yesterday, Credit Suisse said it would deliver strong results due to its "extremely cautious" approach since the second half of 2006.

Subprime mortgages account for only 2 percent of its business.

Moody's Investors Service revealed that it may cut various second-lien subprime mortgage transactions issued in 2007, after projected pipeline losses significantly increased for deals in recent months which will likely erode underlying credit support.