Hong Kong and mainland banks are unlikely to suffer any serious blow from the collapse of financial services firm Lehman Brothers Holdings but may need to make further provisions as the global credit crunch is set to worsen from the fallout, according to analysts. Several banks with operations in Hong Kong and the mainland yesterday emerged as Lehman Brothers' creditors, but the Hong Kong Monetary Authority said the direct exposure of the city's banks was 'insignificant'. 'Local banks' total direct exposure only accounts for 0.05 per cent of the total assets of all Hong Kong incorporated banks,' an HKMA spokesman said. Lehman's bankruptcy filing documents show that Citibank's Hong Kong branch has a US$275 million loan to the US firm, London-based Standard Chartered has lent US$41 million and granted a US$36.1 million letter of credit, while Bank of China's New York branch has made a US$50 million loan. China Merchants Bank said last night it held bonds issued by Lehman Brothers totalling US$70 million and would make provisions. 'We are reviewing all our arrangements under which we will exercise our rights of recovery including recovery against collateral provided by Lehman,' a spokesman for Citi Hong Kong said. HSBC, Standard Chartered and Bank of China (Hong Kong) did not make any comment. Raymond Or Ching-fai, a vice-chairman of Hang Seng Bank, said that his bank had no direct exposure to Lehman or troubled insurer American International Group. 'The market will continue to be volatile until the economy and the property market in the United States stabilise,' Mr Or said. An analyst at a local brokerage estimated that Hong Kong lenders' exposure to Lehman was even smaller than their structured investment vehicles that had triggered significant write-downs. 'They may need to make further provisions in the second half because of the challenging operating environment,' the analyst said. Liao Qiang, an associate director of credit ratings agency Standard & Poor's, said he believed mainland lenders except for Bank of China were unlikely to have made any significant loans to or hold equities of Lehman. Mr Liao said banks that had exposure might see a drop in value of their investment. The direct impact on mainland banks could be limited as their exposures would be immaterial compared with their sizes. 'Nonetheless, the aggregate fallout from the continued deterioration in the global credit market and its detrimental impact on the real economy will have a negative impact on Chinese banks,' he said. Bonnie Lai, an analyst at CCB International, said mainland lenders might need to make further provisions for this half of the year but added that it was difficult to estimate up to what extent at this point. 'The failure of numbers of financial institutions will affect the securities markets, which in turn would add pressure on the market value of other debts held by banks,' Ms Lai said. Other Asian lenders were also major creditors of Lehman. These institutions include Japan's Aozora Bank, with loans totalling US$463 million, and Mizuho Corporate Bank, a unit of Mizuho Financial Group, which had lent the US company US$289 million. South Korea's Financial Services Commission said the country's banks had invested about US$720 million in the investment bank. Taiwan's Fubon Financial Holding, the parent of Fubon Bank (Hong Kong), said the group had direct exposure to Lehman estimated at about US$27 million.