CIMB Group Holdings, Malaysia’s second-biggest financial services company, is finding opportunity at home from Europe’s debt struggles abroad. In June the Kuala Lumpur–based lender completed most of its $250 million acquisition of Royal Bank of Scotland’s equity holdings and investment banking businesses for Southeast Asia and Greater China. CIMB also is taking a stronger role in recent debt and equity fundraisings, serving as the principal adviser to last month’s $2 billion initial share sale by IHH Healthcare in Malaysia and Singapore.
“Cutting back by European banks in Asia has certainly benefited many Asian banks, including our own,” said Thomas Meow, head of capital markets for CIMB Investment Bank in an interview with Institutional Investor. “We are presented now with more opportunities in the region, not only in capital markets but also loan markets.’’ That includes jointly financing aircraft with some European banks, while buying gaming-company loans on Singapore’s secondary market from others. —
Deleveraging in Asia by European banks was widely expected to generate systemic credit problems for the region’s economies and businesses. That hasn’t materialized — at least, not yet. Instead, Asian banks, including CIMB and Singapore’s DBS Group, have responded to the euro zone debt crisis by broadening their geographic footprint and aggressively expanding their cross-border service offerings. (DBS executives were recently ranked among the best executives in Asia by analysts who participated in an Institutional Investor survey.)
Alongside Japanese and U.S. lenders, as well as HSBC Holdings and Standard Chartered, the London-based banks with pan-Asian franchises, they are helping to provide greater stability than analysts initially thought possible. It’s too early to see whether regional banks gain additional ground as a result of those banks current problems with regulators. (The Financial Times reported on Tuesday that Standard Chartered has agreed to pay $340 million to settle accusations that it hid from U.S regulators key details involving some $250 billion in transactions with Iran and potentially violated U.S. sanctions policy.)
“Whenever banks have challenges and pull back, somebody has to step up to the plate,” explained Ken Stratton, global head of sales for DBS Group’s global transaction services division.
The consolidated claims, including direct lending, syndicated lending, and trade and capital finance by European and U.K. banks in Asia, excluding Japan, declined by roughly $145 billion, to $1.33 trillion, during the second half of last year. European lending has since leveled off, reaching $1.37 trillion in the first quarter, according to a HSBC Global Research analysis of Bank for International Settlements statistics. Significantly, European credit to the region continues to outpace levels reached at the outset of the global financial crisis, even as that lending as a percentage of total local credit continues to decline, explained Frederic Neumann, HSBC’s co-head of Asia economics research. “The credit spillover remains contained at the moment, and optimists are even arguing that there will be diminishing marginal impact from the European turmoil on local markets,” Neumann said.
Asian banks aren’t waiting. Bolstered by strong balance sheets, low levels of nonperforming loans and capital adequacy ratios that generally exceed regulatory standards, regional lenders have moved offshore to deepen their relationship with existing clients and establish relationships with new customers. At DBS, global transaction services income jumped 62 percent in the first half of 2012, driven by commodities and structured-trade finance transactions. “We’ve always had a strong trade business, and the commodity business has grown quite dramatically given the huge demand out of China,” DBS’s Stratton explained. “We’ve won quite a lot of mandates, and with European banks pulling back, many existing clients have put bigger credit lines in place.”
Japanese banks, including Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group, also have been ramping-up their regional commercial bank and financing operations, while bolstering their own investment banking divisions. Citi, meanwhile, has seen its trade finance volumes increase by about 20 percent year-to-date, led by Greater China, including Hong Kong and Taiwan. The New York–based bank also has been picking up loans sold by European banks at a discount, as those banks continue to deleverage their balance sheets, a spokesman said.
Many Asian banks also are helping regional companies raise funds away from U.S. dollar markets, explained CIMB’s Meow. In the past, those firms obtained U.S. dollar loans or issued U.S. dollar bonds. They now are raising funds on local bond and hybrid markets, and then turning to swap markets to obtain the G3 currencies — dollars, euros and Japanese yen. Debt raised in Asia Pacific, excluding Japan, amounted to a record $487.8 billion during the first six months of the year, representing growth of 27 percent from a year earlier, led by $309.6 billion in local-currency fundraising, according to statistics compiled by Dealogic. Syndicated lending over the same period softened markedly, reflecting in part weaker export markets.
Asian banks also have been agile at tapping credit markets to raise U.S. dollars, which remain in demand as trade finance and other offshore credit continues to be dominated in U.S. dollars and euros. In July, CIMB sold a $350 million 5-year senior unsecured note, while DBS expanded its U.S. commercial paper program by $5 billion to $15 billion a month earlier.
Still, Asia’s new cross-border business may not be without its headaches down the road, says Stephen Long, a Hong Kong–based managing director at Moody’s Investor Services. “Rapid growth in new borrower segments and outside many of the banks’ traditional markets has contributed to improved asset quality and profitability metrics to date, but it also has made Asian banks take on sizeable new risks,” Long told a conference in June.
