APAC banks to see increase in capital market transactions

ASIA-PACIFIC banks will likely see a rebound in capital market transactions this year as hopes over possible US central bank rate cuts are expected to improve sentiment, S&P Global analysts said.

The US Federal Reserve (Fed) commenced its two-day policy meeting — its first in 2024 — on Tuesday and faced expectations of an early rate cut amid slowed inflation and strong growth figures.

Last December, the US central bank said it was expecting three possible rate cuts by a total of 75 basis points this year.

These expectations, the analysts said, could help banks in the region increase their total debt and equity issuance volumes, which tumbled to an 11-year low in 2023.

Asia-Pacific banks raised roughly $238.1 billion via debt and equity instruments last year, down from the year-earlier $289.89 billion and the $311.26 billion recorded in 2021.

The 2023 figure was said to be the lowest in the last 11 years, S&P Global Market Intelligence data showed.

For last year’s equity instruments alone, the banks in the region raised around $37.89 billion, up from $27.18 billion a year ago but still lower than the $40.26 billion and $49.02 billion raised in 2021 and 2020, respectively.

“Aggregate capital raised by banks in the Asia-Pacific through debt securities in 2023 fell to $200.21 billion, also the lowest in at least 11 years,” it added. “The debt figures covered in the analysis include bonds, senior debt and preferred securities.”

Concerns over inflation, interest rates and geopolitical tensions hampered global economic growth prospects and weighed on market sentiment throughout 2023, S&P Global said.

“Higher rates across most of the markets drove funding costs higher for investors, dragging issuance and M&A (mergers and acquisition) transaction volumes,” it noted.

However, market sentiment was seen brightening this year on the back of expectations that the Fed will start cutting rates, Oluchi Ikechi-D’Amico, partner at Earnest & Young’s APAC strategy and transactions capital markets, told S&P Global.

This improved sentiment, she said, may “encourage borrowing and investment, potentially boosting capital market transactions in Asia-Pacific as businesses seek financing opportunities in a more favorable interest rate environment.”

Meanwhile, Regina Capital Development Corp. Managing Director Luis Limlingan told The Manila Times that the Fed will likely keep interest rates unchanged following its January meeting.

The policy meeting, Limlingan noted, could provide investors with the “rhetoric to make necessary assumptions on rate cut projections” this year.

Online brokerage 2TradeAsia. com echoed this, saying the Fed meeting would be “crucial” as this was “widely expected to drive investor sentiment” for the remainder of the first quarter of 2024.