(Bloomberg) -- Asian financial stocks fell for a second day as the failure of Silicon Valley Bank deepened concerns that soaring interest rates are eroding balance sheets across the sector.

The MSCI AC Asia Pacific Financials Index dropped as much as 1.3% on Monday, hitting its lowest level since Dec. 20 and adding to Friday’s 2.2% slump. Japanese bank shares were particularly hard hit, with a gauge tracking the sector falling 4% after slumping 5.4% on Friday.

Asian lenders declined even as US authorities raced on Sunday to stem jitters about the health of the nation’s financial system, pledging to fully protect all depositors’ money following the collapse of Silicon Valley Bank while also giving any banks squeezed for cash easier terms on short-term loans.

Fears of contagion from the largest US bank failure since the 2008 financial crisis are spreading around the world, upending the outlook for everything from riskier assets to US interest rates. Despite government intervention, stalwart investors such as Pershing Square’s founder Bill Ackman see more casualties in the US banking system, and some startup founders have warned that SVB’s failure could lead to wipeouts in the sector.

“The market should not underestimate the risks of SVB saga, as its problems are not unique, including rising financing costs and huge investment losses due to asset-debt maturity mismatch,” CICC analysts including Liu Zhengning wrote in a note dated March 11. It may be worth paying “attention to non-bank financial institutions, which may be sitting on high leverage and maturity mismatch as they stayed in low interest environment for too long.”

Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Japan Post Bank Co. all fell more than 3%. Korea’s Shinhan Financial Group Co. and Hana Financial Group Inc. slumped before erasing losses, while Australia’s ANZ Group Holdings Ltd. and National Australia Bank Ltd. dropped more than 1.5% each.

“The point that caught the eye of the bond market is that SVB has sold most of its available-for-sale (AFS) bonds, which carried net unrealized losses,” Masao Muraki, an SMBC Nikko Securities analyst, wrote in a March 10 note. “There are concerns that other US banks and Japanese banks/life insurers will follow suit amid renewed inflation fears and rising long- and short-term interest rates.”

To be sure, some market participants have said that Asia will likely face limited contagion risk due to superior growth prospects, lenders’ diverse customer base, and improving asset quality. 

Banking stocks in China and India bucked the broader weakness in the sector amid low exposure to the US. Industrial and Commercial Bank of China rose as much as 3%, while India’s ICICI Bank Ltd. advanced 1.5%.

Elsewhere, a measure of the biggest Philippine banks slid as much as 1.9% as all of its nine components declined. Bank of the Philippine Islands, Security Bank Corp. and Rizal Commercial Banking Corp. each fell more than 2%.

--With assistance from Jeanny Yu and Kurt Schussler.

(Updates with more context in fourth paragraph and moves in ninth paragraph.)

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