Asia financial stocks slip as US credit worries jolt investors

SINGAPORE, Oct 17 (Reuters) - Asian financial stocks dropped on Friday, with the worst declines in Japan, following a rout in U.S. regional banking shares on worries about mounting risks and credit quality.

The banking sector's exposure in two recent U.S. auto bankruptcies rekindled concerns about lending standards more than two years after Silicon Valley Bank's failure, when high rates drove paper losses on its bonds.

Shares of Japanese banks .IBNKS.T and insurers .IINSU.T sank on Friday, with Tokio Marine 8766.T, Mizuho 8411.T and Mitsubishi UFJ Financial Group 8306.T all down nearly 3%.

That came after the U.S. regional banking index .KRX slumped 6% on Thursday as two small banks disclosed separate issues.

Zions Bancorporation ZION.O said it would take a $50 million loss on two commercial and industrial loans from its California unit, while Western Alliance WAL.N disclosed it had initiated a lawsuit alleging fraud by Cantor Group V, LLC.

Analysts said while the issues were unlikely to pose systemic risks, they would weigh on near-term sentiment.

"While meaty, the size of the bad loans in and of itself is unlikely to pose risks to the overall system," said Kyle Rodda, senior financial analyst at Capital.com.

Rodda said the underlying cause of both the issues was lax lending standards and fraud, which has spurred fears that such behaviour is endemic and could lead to further defaults.

Other financial stocks in Asia were also under pressure, with Singapore's DBS Bank DBSM.SI down nearly 1%, while Australian insurer QBE QBE.AX fell 9%.

The recent bankruptcies of U.S. auto parts supplier First Brands and car dealership Tricolor have put a spotlight on the risk controls of banks and the opaque credit market, where complex loans have made it harder to gauge participants' exposure.

The twin collapses last month have forced some debt investors to cut exposure to certain sectors over concerns about weakness in consumer and auto lending.