Loans bankers across Asia Pacific had a busy start to 2011. Borrowers signed some $214.82bn loans by the middle of July in Asia Pacific ex-Japan, compared to $185.39bn completed over the same period in 2010, according to data from Dealogic.
Commodities companies have been particularly active borrowers, with several agreeing multi-billion dollar deals that stretched local liquidity to the max. Noble, for example, closed a $3.2bn syndication earlier this month. Glencore successfully raised $11.875bn from a loan that targeted both Asian and European borrowers in May.
But some bankers now believe that local liquidity has reached its limits and a slowdown is on the cards. Financial institutions need to reassess the cost of providing so much funding to so many companies — at a time when banks’ funding costs continue to rise.
Regulatory changes have made banks less willing to lend to one another. Basel III has pushed international banks to refocus on their capital ratios and loan books while domestic regulations in China have had a similar effect. Lenders are being more selective about the type of companies they want to do business with as a result.
US dollar and Hong Kong dollar deposit bases are also shrinking as many customers opt to take a bet on the appreciation of renminbi, rather than get caught up in uncertainty surrounding the US debt ceiling.
That all seems to add up to an environment that doesn't favour the syndicated loans business, but one shouldn't rush to that conclusion. Once borrowers have digested the wider margins and higher fees that they will be presented with, they will no doubt realise that loans are still among the most cost efficient financing out there.
And that's not all. With capital markets volatility rising and unlikely to subside soon, for some borrowers loans might not just be the most efficient option, but the only one.