Capital raising by banks in Asia-Pacific will likely stay steady amid global monetary tightening after a slump in October that followed a seasonal spike in the previous month.
Banks in the region raised $8.61 billion of debt in October, down from $26.07 billion in September and from $9.52 billion in October 2021, data compiled by S&P Global Market Intelligence shows. The debt issuances for October were also the lowest monthly total since June.
"Rising rates and strength of the U.S. dollar are joined at the hips. In Asia, rates haven't necessarily increased to keep pace with other regions, and hence on a relative basis, it's been more attractive for certain issuers to issue in local currency, especially if those banks have an investor base for the local currency bonds," said Riad Chowdhury, head of Asia-Pacific at electronic trading platform MarketAxess. "This dynamic is unlikely to go away in the very near term, so a bank's issuance strategy will continue to balance its ability to raise capital combined with the appetite from investors for the type of issuance."
Asia-Pacific central banks have kept pace with the U.S. Federal Reserve's hawkish rate hikes in a bid to tame inflation. Earlier in November, the Fed raised interest rates by 75 basis points for the fourth consecutive time this year, bringing the benchmark federal funds rate to between 3.75% and 4.00%. The Fed is still expected to deliver another rate hike in its last policy meeting scheduled in December. Many Asian central banks have been forced to follow the Fed, though China has continued to ease and Japan has held steady to support the region's two biggest economies emerging from the COVID-19 pandemic.
Banks' bond issuances are largely driven by the need for capital to drive business activity or expansion, refinancing maturing debt and the cost of funding, Chowdhury told S&P Global Market Intelligence.
Led by Bank of China Ltd.'s $6.27 billion nonconvertible debt issuance, Chinese banks were active in the debt market in October through the local currency route.
The Chinese banking sector has sufficient buffers to withstand loan stresses caused by a slowing economy, property downturn and weakening of small businesses, according to an S&P Global Ratings outlook report published Nov. 17.
The People's Bank of China has maintained a loose monetary policy this year, seeking to support economic growth as COVID-19 infections continue to flare up in certain parts of the country.
South Korean banks Industrial Bank of Korea and Shinhan Bank Co. Ltd., along with Hong Kong's Chiyu Banking Corp. Ltd. were the only lenders that sold U.S. dollar-denominated nonconvertible bonds this month.
On the equity side, four banks in Asia-Pacific raised a total of $1.34 billion selling shares in October, down from $1.66 billion in the prior month. However, it was higher than $490 million raised in the prior-year period. Beijing-headquartered Hua Xia Bank Co. Ltd. led the equity issuance with its $1.12 billion follow-on offering.
Chowdhury noted that capital costs are higher across equity and debt markets. So, companies need to examine their balance sheets to find the right mix of optimal capital structure. "Investors have shied away from being long duration most of this year — any change in that view will be an important input into issuers' decision-making."
