Sat, Dec 15, 2018 - Page 12 News List

Local banks wary on Chinese debt

Bloomberg

Domestic banks, voracious lenders to Chinese companies in recent years, are starting to cool their appetite as they contemplate the longer-term consequences of the US-China trade dispute.

Faced with low interest rates at home, domestic lenders — renowned for their clout in Asia’s syndicated loan market — poured across into China, so much so that the local regulator capped the amounts they could extend.

Some have used up most of their quotas, Financial Supervisory Commission data showed.

On average, China made up 54 percent of the total book value of domestic banks’ assets last quarter, up from 50 percent at start of last year.

However, below the surface, there are hints of a shift.

The number of syndicated-loan deals for Chinese companies involving domestic banks is set to drop this year for the first time since the 2015 China economic hard-landing scare, data compiled by Bloomberg showed.

“We have had more scrutiny and reviews on Chinese credits,” Hong Kong-based Taipei Fubon Commercial Bank Co (台北富邦銀行) senior vice president of corporate finance Brian But (畢漢華) said.

Among the firms he says he is cautious about are those with US export business and leasing companies that could be exposed to exporters.

China’s economic growth has already slowed, before economists see the brunt of this year’s escalation in tariffs having an impact.

The nation has also seen a record 103 billion yuan (US$15 billion) of defaults on local bonds this year, a consequence in part of moves by policymakers to clamp down on shadow financing.

It all means that despite attractive pricing, domestic lenders are getting “more conservative” toward Chinese private-sector enterprises, But said.

Domestic banks, flush with US dollar deposits at home, punch above their weight in Asia. More banks from the nation than any other location were in syndicated-loan deals in the Asia-Pacific region outside Japan this year, data compiled by Bloomberg showed.

A pullback in credit from domestic banks would add to the woes of Chinese companies that have struggled to secure financing in wake of the deleveraging crackdown.

Some domestic lenders are looking to Southeast Asia — much like some manufacturers — as the trade dispute threatens to reshape global supply chains.

Taipei Fubon is among those seeing more opportunities in the region.

“We have started to see an obvious shift of Taiwanese borrowers looking for building or expanding their production capacity in Taiwan or Southeast Asian countries instead of mainland China — especially in the manufacturing sector,” Taipei-based Mega International Commercial Bank (兆豐銀行) head of syndicated loans James Lee (李建平) said.

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