The fallout in Asia from the United States sub-prime mortgage crisis has so far been limited but a sharp slowdown in the US economy will impact the region, a Singapore minister warned this morning.

Second Minister for Finance Tharman Shanmugaratnam said that while Asian market had been volatile, it had little to do with the exposure of Asia institutions to the sub-prime problem.

"Asian banks and investors are generally believed to have limited exposure to US sub-prime, either directly or indirectly through hedge funds, special conduits, CDOs and contingent financing facilities," he said at the opening of French bank SG Private Banking's office at One Raffles Quay.

"The MSCI Asia ex-Japan is only down 1.6 per cent since mid-July when the sub-prime problem erupted and is still up 24 per cent for the year. Excluding China, the Asian markets are still up 22 per cent since the start of the year, and 45 per cent since the middle of last year.

"Likewise, the credit squeeze in the US and Europe has thus far not been evident in Asia. Credit bond spreads have widened, but the correction has been healthy and spreads remain below their historical levels. Bank lending too, which remains the main channel of intermediation in Asia, has not been tightened significantly."

But he noted that Asian markets had been affected by the general uncertainty surrounding the location of risk in global markets, and investors have in many instances sold Asian assets to raise cash as liquidity dries up elsewhere.

He also signalled that there is now concern over the impact that a tightening market and falling asset values will have on consumer confidence and economic growth in the US.

Warning that the repricing of risk in financial markets is "probably not over", Mr Tharman said: "There is also increased uncertainty in the near term outlook for the US economy, which could impact on the outlook in Asia.

"Economic forecasts for the US economy are being scaled down, compared to expectations just two months ago. It is too early to say what the economic impact on Asia will be. Should the US economy slow down sharply, Asia will certainly feel the drag."

But the Minister remains upbeat about Asia's long-term prospects, especially for growth of the private banking sector here.

He said: "There is every reason to expect the continued rapid growth of a sophisticated class of Asian investors who want to diversify globally, and into new asset classes like private equity. These fundamentals will continue to drive the private banking industry in Singapore, as a leading centre for the industry in Asia."

He added that while the current credit crisis "introduces significant near term uncertainty", but it does not "alter the picture of an increasingly dynamic and resilient Asia in the coming years and decades".

"There has been no downgrading Asia's economic prospects over the medium term, and no reason for any such downgrading," said Mr Tharman.

"Asian producers will continue to move up the productivity ladder, and Asian consumers will increasingly provide the region with an independent engine for growth. Global investors will therefore continue to seek out higher returns in Asia.

"There is also every reason to expect the continued rapid growth of a sophisticated class of Asian investors who want to diversify globally, and into new asset classes like private equity. These fundamentals will continue to drive the private banking industry in Singapore, as a leading centre for the industry in Asia."