RLPC-Regulators slow Asia Pacific lending in third quarter


(Reuters) - Excluding Japan, Asia Pacific loan volume of $336.7 billion was six percent higher in the first nine months of 2014 than the same period last year, but third quarter volume fell as the region's regulators took steps to curb lending to China.

Third quarter volume of $101.4 billion was lower than the previous two quarters as regulatory action slowed the market in a quieter summer, in contrast to good activity in the first six months of 2014.

"The Asia Pacific (loan) market in general is pretty strong this year, especially in North Asia where we see a lot of privatisation and event-driven deals," said Boey Yin Chong, managing director of syndicated finance at DBS Bank.

Slower dealflow saw increased competition by banks for fewer mandates and loan pricing tumbled across the region as banks were able to lend at lower rates thanks to lower funding costs.

"If I have to point to one thing about 2014, it will be the significant price compression we have seen across APAC, especially in key markets like China and India," said Aditya Agarwal, head of loans, Asia at Royal Bank of Scotland.

China, which was Asia's biggest loan market in 2013, was the biggest contributor to the third quarter slowdown, as regulators in Hong Kong, Singapore and Taiwan announced measures to curb their banking systems'growing exposure to China.

Regulators stepped in to limit banks' exposure to rising loan default rates for Chinese privately-owned companies. Some sectors are struggling as China's economy slows and the government has indicated that little support will be forthcoming.

Sinosteel Corp, China's biggest state-owned steel trader, was in the spotlight in September after announcing that it was facing financial difficulties due to unpaid bills from its customers.

Loans to smaller companies such as shoemaker China Ultrasonic Outdoorwear Holdings Co Ltd have also been in focus after corporate governance issues spooked the market.


China maintained its position as Asia's biggest loan market with volume of $76 billion in the first nine months. Third quarter volume of $26.6 billion was 21 percent lower than a year earlier and eight percent lower than the second quarter of 2014.

China produced the largest Asia Pacific loan in the third quarter. In July, a syndicate of four Chinese banks signed two facilities totalling $6.957 billion to fund the $5.85 billion purchase of the Las Bambas copper mine in Peru by China's MMG Ltd from global mining firm Glencore Plc.

Hong Kong's loan market also continued to benefit from its status as the offshore funding centre for Chinese companies, with volume of $64 billion in 2014 in the year to date, showing a 7.5 percent increase on $59 billion transacted in the same period of 2013.

"While volume is high, pricing for high grade Hong Kong names has been under significant pressure as liquidity continues to flow into Hong Kong's markets," Boey said.

Hong Kong lending was however 27 percent lower at $17.08 billion in the third quarter compared to the second quarter.

Australia also saw a significant third quarter decline to $20 billion compared with $33 billion in the second quarter as borrowers stayed on the sidelines and M&A activity remained muted.

The fourth quarter of 2014 promises some more Australian M&A loans after a long-awaited pick up in activity in the US and Europe. Refinancings for supermarket giant Woolworths Ltd and Colonial First State Investments Ltd are expected to boost Australian fourth quarter volume.


The third quarter slowdown in Asia Pacific has prompted more competitive behaviour by banks trying to win mandates, which has pushed pricing down across the region, aided by a drop in banks' funding costs.

India and Indonesia's economies have also bounced back from high levels of macroeconomic volatility seen last year. Banks' appetite to lend is recovering but falling loan pricing is hitting banks' bottom line.

"The pipeline is good, but everyone is looking at tighter pricing. The challenge for loan arrangers is to transact more profitable loans, which is difficult now," said John Corrin, global head of loans at ANZ.

Taiwanese banks, traditionally Asia's biggest lenders, are facing tough curbs on Chinese exposure from their regulator and are now looking to participate in deals from other parts of the region, especially India and Indonesia.

"From an overall perspective, we continue to see China, India and Indonesia as key US dollar loan markets in APAC in 2015," said Aditya Agarwal.

Frequent state-owned oil and gas borrowers from India including Indian Oil Corp, Hindustan Petroleum Corp Ltd and Indonesia's PT Pertamina, among others, have been able to refinance existing loans at lower rates.