Asian banks fill in gap left by Europe lenders

The Pak Banker - - COMPANIES/BOSS -

As Euro­pean banks con­tinue to pull back in Asia, reel­ing un­der the debt cri­sis back home, re­gional banks are fill­ing in the gap by buy­ing their as­sets and in­creas­ing lend­ing, say an­a­lysts.

"It's in­ter­est­ing be­cause we were very wor­ried about the ef­fect of Euro­pean banks in Asia. We know they don't have enough cap­i­tal and are grad­u­ally with­draw­ing from the re­gion, selling as­sets and cut­ting lend­ing and you won­der whether that is go­ing to be dis­rup­tive," Richard Jer­ram, Chief Economist at Bank of Sin­ga­pore, told media. "But all the signs we are get­ting are that re­gional banks are pre­pared to buy the as­sets (of Euro­pean banks) and in­crease lend­ing ( to cor­po­rates), so the dam­age from that Euro­pean dis­tress is rather less than it seemed likely a year ago," he added.

Con­cerns about a debt cri­sis in the euro zone have mounted this year, with fo­cus turn­ing to Italy and Spain, where bor­row­ing costs have soared. The wor­ries have rat­tled global mar­kets as in­vestors weigh the likely fall­out of the cri­sis in Europe on the rest of the world.

"Lend­ing by the con­ti­nen­tal Euro­pean banks was more than a third of to­tal Asian cross­bor­der lend­ing pre-Lehman and now that's down to 20 per­cent and it hasn't re­ally seemed to mat­ter that much," Jer­ram said re­fer­ring to the col­lapse of Lehman Broth­ers in 2008 which sent global mar­kets into a tail­spin.

Lend­ing by con­ti­nen­tal Euro­pean banks to Asia-Pa­cific stood at $356 bil­lion at the end of 2011, ac­cord­ing to the latest data from the Bank for In­ter­na­tional Set­tle­ments. That com­pares with $379 bil­lion at the end of 2010 and is down from a peak of around $455 bil­lion in June 2008.

Jer­ram said that in­stead of lead­ing to shrink­ing liq­uid­ity in Asia, the fall in Euro­pean bank lend­ing to the re­gion has prompted lo­cal banks to step up their lend­ing to cor­po­rates in the re­gion and that has been a pos­i­tive sign.

Ac­cord­ing to a re­port pub­lished by Stan­dard & Poor's Rat­ing Ser­vices, banks in Sin­ga­pore, Hong Kong and China have re­cently shown par­tic­u­larly rapid credit growth over­seas and this has out­paced credit growth in their do­mes­tic mar­kets. In Sin­ga­pore, for ex­am­ple, growth in credit ex­po­sure over­seas rose to al­most 30 per­cent in 2011 from just over 10 per­cent in 2010. Credit growth in do­mes­tic mar­kets has been rel­a­tively sta­ble at just over 10 per­cent in 2011 and 2010, the S&P re­port showed.

Banks in Sin­ga­pore, Hong Kong and to some ex­tent Ja­pan are all ben­e­fit­ing from a pull­back in bank­ing ac­tiv­ity by Europe's banks in Asia, Ritesh Ma­hesh­wari, Man­ag­ing Di­rec­tor for Fi­nan­cial Ser­vices Rat­ings at S&P told CNBC. Earn­ings re­ports from the re­gion's big banks have helped boost share prices which were dealt a blow last year from con­cerns about the global eco­nomic out­look.

Sin­ga­pore-based DBS, (Sin­ga­pore Ex­change: DBSM-SG) South­east Asia's largest bank, posted a record first-quar­ter profit and said its ex­pan­sion in the re­gion would drive the bank's fu­ture earn­ings. The bank's in­come from Sin­ga­pore rose 15 per­cent in the first quar­ter, while rev­enue out­side Sin­ga­pore jumped 35 per­cent as loans to China soared 81 per­cent and lend­ing to In­dia rose 42 per­cent. DBS un­veils its earn­ings for the sec­ond quar­ter later this week.

Jer­ram at Bank of Sin­ga­pore added that lo­cal banks in the re­gion would con­tinue to eye as­sets up for sale by Euro­pean banks as they pull back their ex­po­sure glob­ally. Malaysia's CIMB Group (Kuala Lumpur Stock Ex­change: CIMB.KL) is pay­ing about $267 mil­lion for some of the Asian units of Royal Bank of Scot­land.

There are more op­por­tu­ni­ties for Asian banks: ING Groep, (Euronext Am­s­ter­dam: INGA-NL) the Dutch fi­nan­cial ser­vices group that was bailed out dur­ing the fi­nan­cial cri­sis, is selling its stake in Thai­land's TMB Bank. The stake is val­ued at about $775 mil­lion.

Both DBS and Aus­tralia's ANZ have ex­panded into the re­gion in re­cent years. In the last two years, DBS, for in­stance snapped up RBS's re­tail and com­mer­cial bank­ing busi­nesses in China. "To the ex­tent that those (as­sets) are made avail­able by Euro­pean banks delever­ag­ing, they will be snapped up by Asian banks," Ma­hesh­wari said.

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