SINGAPORE, Nov 10 – Asean banks will increasingly turn to capital markets, particularly by issuing bonds, in order to fund their lending operations, says Moody’s Investors Service. Its assistant vice president/analyst, Alka Anbarasu, said loan growth in most parts of the Asean region has steadily outpaced deposit inflows over the past several years, leading banks to use most of their stock of deposits to fund loans.

“Going forward, we expect that further growth will also be driven by funding needs, rather than solely by choice. Therefore, funding and liquidity will increasingly become factors that differentiate Asean banks’ credit profiles,” Anbarasu said. Anbarasu was speaking on Moody’s new report entitled ‘Asean Banks’ Bond Issuance Set to Increase as Loan Growth Continues to Outpace Deposit Inflows’ here today.

The report was co-authored by Anbarasu and Falemri Rumondang, a Moody’s associate analyst. According to the report, outstanding bonds and borrowings (excluding interbank loans) by rated Asean banks increased by 71 per cent to US$168 billion at end-2013 from US$98 billion at end-2009. This was in part driven by opportunistic market tapping at a time when credit spreads were low and investors’ appetite for Asean bank debt was growing, it said.

The report said loan-to-deposit ratios (LDRs) rose to around 90 per cent at most Asean banks at end-2013 from the low 80 per cent-range at end-2009. Indonesian banks appeared the most stretched, particularly in local-currency funding, it said. It said banks in Thailand and Vietnam have some of the highest foreign-currency LDRs, indicating elevated foreign-currency funding needs.

“Banks in Singapore and Malaysia also have increasing foreign-currency funding requirements, owing to their active pursuit of intra-regional expansion,” it said. The report said while banks had been able to fund part of their credit growth by converting liquid assets into loans, this flexibility would be reduced in the future, as banks had to keep minimum liquidity buffers.

In Indonesia, Malaysia and Singapore, local regulators required banks to maintain minimum amounts of highly liquid assets to meet Basel III liquidity ratios by 2015 and 2016, it said. While the same rules have not yet been introduced in the Philippines, the regulator has already required banks to maintain high reserves of 20 per cent.

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