Asia's loan market is heading into the second half of the year with little sign of a rebound, according to bankers, as the fallout from the Iran war continues to suppress confidence among lenders and borrowers. Loan issuance in dollars, euros and yen across Asia Pacific ex-Japan dropped 15% from a year earlier to $69 billion in the first six months, the weakest first-half performance in 16 years, according to data compiled by Bloomberg. The Middle East conflict has delayed investment and deal-making in Asia, while financing timelines are dragging out as lenders subject transactions to closer scrutiny for risks. Bankers say these headwinds will likely persist over the rest of the year, with competition also likely to curb some loan margins. Andrew Ashman, head of Asia Pacific loan syndicate at Barclays, noted that with increased uncertainty, there is a reduction in corporate confidence, and expectations for mergers and acquisitions to drive more loans have not materialized. There has also been less liquidity coming from the Middle East, with banks in the region becoming more selective on offshore deals to preserve liquidity for their home markets, according to half a dozen bankers Bloomberg spoke with. Ashish Sharma, head of leveraged and acquisition finance and loan syndications for Asia Pacific at HSBC, said that over time, flows are expected to recover as the Asia-Middle East corridor continues to strengthen, but in the near term, things need to settle. Beyond the Middle East, China's prolonged property downturn continues to weigh on borrowing, the Indonesian government's clampdown has made businesses more cautious, while higher oil prices and weaker currencies have made conditions tougher in markets such as India. Birendra Baid, head of Asia Pacific loan syndication at Deutsche Bank, said the second-half volume may not be different from the first half purely because of macroeconomic reasons, and with banks still willing to lend, pricing will compress. Some lenders are shifting toward higher-yielding areas, with structured credit emerging as a bright spot and data center financing seeing a steady flow of deals, though margins on a recent Malaysia data center deal were 310 basis points over the US Secured Overnight Financing Rate, compared with levels largely in the 200s over the past year. Even Australia, one of the region's more resilient markets, saw loan volumes fall about 10% in the first half, and an influx of bank liquidity has increased competition, keeping spreads down.
Barclays PLCBarclays' head comments on weak loan market; reduced corporate confidence and M&A activity hurt loan demand.
HSBC Holdings PLCHSBC's head notes weak loan market; lower loan issuance and cautious lending environment reduce demand.
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Deutsche Bank Aktiengesellschaft