Finance

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

True to historical form, Asian banks are lending away even as their peers in other emerging markets have slowed advances. That wouldn't be so alarming if they had the healthy balance sheets they did during the credit crisis, when they were viewed as something of a financial haven. But things are slightly different now.

Loan volumes in Asia excluding Japan, Australia and New Zealand dropped 11.4 percent in the first quarter, the biggest fall since 2013. In eastern Europe, Middle East and Africa, however, they tumbled almost 50 percent and about 70 percent in Latin America.

Just a Drop
Loan volumes in Asia fell, but not by nearly as much as other emerging markets
Source: Bloomberg
* Data refers to the first quarter every year.

Bond issuance, meanwhile, increased 11 percent in eastern Europe and 6 percent in Latin America. In emerging Asia, it decreased 27.8 percent. A rise in note offerings is usually a sign companies are resorting to capital markets instead of banks. If lenders' balance sheets aren't available, then maybe bond funds are, as the thinking goes.

Unbonded
Borrowers from Latin America and Eastern Europe kept bond bankers busy
Source: Bloomberg
* Data refers to bonds in U.S. dollars, euros and yen for the first quarter of each year.

That bank lending in Asia is holding up better than in other parts of the world shows lenders from the region remain willing to make advances in spite of crippling regulation. It's concerning considering Asian banks haven't done as much to bolster their capital cushions versus lenders elsewhere. Large Asian banks' Tier 1 capital ratios, a buffer against losses, average 10.8 percent compared with 9.4 percent at the end of 2009. For banks in western Europe, that figure has climbed to 15.8 percent from 11.5 percent.

Not Much Padding
Banks in Asia have the smallest loss cushion
Source: Bloomberg
* Average ratio of 30 biggest banks in each region.

When banks have less capital, they typically either retain earnings and raise equity, or slow lending, or both. That hasn't been happening to the same degree in Asia, especially among Chinese lenders.

For companies, that's good news, because it means they can find cheaper and easier money from their bank rather than capital markets, where volatility is making it more difficult to get bond sales away. But it also begs the question of whether Asian banks are becoming more lenient than their Western counterparts. You'd think banks in Asia would be working to recover bad loans and be a little more mindful about making new ones, given delinquent advances in Singapore are the highest since 2009 and the most in a decade in China.

So far, this determination to keep on lending hasn't been a problem. However, a raft of additional regulations is coming into effect over the next two years that will further constrain financial institutions' ability to lend. Asian banks should start pressing on the brakes a bit harder. If not, they risk crashing down the road. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Christopher Langner in Singapore at clangner@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net