Divisions emerged among financiers in Manila over the extent of the dangers posed to Asia’s financial markets by continued European banking stresses.
Senior officials backed the warning given by ADB President Haruhiko Kuroda to Emerging Markets on Wednesday that Asia faced a withdrawal of funding by European banks that could harm the region’s economy.
Spencer Lake, co-head of global markets at HSBC in London, told Emerging Markets that it was “disingenuous” to believe that what was happening in the eurozone would not have global implications.
Ritesh Maheshwari, financial services analyst at ratings agency Standard & Poor’s, told Emerging Markets that a withdrawal of European bank capital would negatively impact foreign currency lending in the trade finance, derivatives and syndicated loan markets, reducing credit supply in Hong Kong, Singapore, and Tokyo in particular.
Korean finance minister Bahk Jaewan meanwhile acknowledged the risk that deleveraging by European banks could have on Asia and other regions and stressed also that the increased “volatility” of global capital flows posed a new risk to financial stability around the world.
According to David Spegel, emerging market strategist at ING, new syndicated bank lending to emerging markets dropped “precipitously” to $105 billion in the first quarter of 2012, a 51% fall compared with the previous four months.
European banks are under huge pressure, penned in from all sides. Basel III rules compel banks to bolster their balance sheets by reducing loans and raising new capital, reducing their ability to make new loans.
On top of that banks are under strategic and political pressure to lend to key clients close to home, or to key clients far away.
Justin Crane, head of loan syndication for Asia ex-Japan at Credit Suisse said that while Basel rules and the euro crisis had forced European banks to scale back their exposure to Asia, “there was no way Asian banks could have stepped in with the size that was needed” to compensate for the shortfall.
Mark Evans, global head of trade at ANZ in Melbourne, acknowledged the funding gap but said that its size was “currently unknown.”
However not all market participants are convinced that deleveraging is a major issue for Asia. Many believe European banks are still committed to the region, recognising the importance of retaining a considerable presence in a region where economic growth is a measurable term rather than a distant memory.
James Cameron, head of project finance, Asia Pacific, at HSBC, said European banks contributed around 10% of the financing needs of Asia’s markets at the end of March 2012, a figure that has remained largely consistent throughout the financial crisis. “I don’t think eurozone concerns are materially impacting liquidity in Asia,” Cameron said.
ADB chief economist Changyong Rhee said he did not believe the situation with regard to withdrawal of European bank credits from Asia was currently “as bad as we had feared”. “We see no reason to revise down our growth forecasts” for the region as a result of deleveraging so far, he told Emerging Markets.
One senior official at a major US bank who declined to be named said he saw little cause for concern at this point so far as the impact on Asia of European bank deleveraging was concerned.