Debt issuance by banks in the Asia-Pacific region hit a 21-month low in September, as lenders remained cautious amid uncertainties around interest rates.
Banks in the region raised a total $8.78 billion in debt securities in September, down from $28.54 billion in the same month of 2022, according to data compiled by S&P Global Market Intelligence on a best-efforts basis. It was also down sharply from $15.06 billion in August 2023.
Three billion-dollar debt offerings from Asian Infrastructure Investment Bank, DBS Group Holdings Ltd. and Bangkok Bank Public Company Ltd. Hong Kong Branch highlighted debt offerings in the region in September. The aggregate debt figures include bonds, senior debt and preferred securities.
Led by the US Federal Reserve, many central banks globally have been raising policy rates to tamp inflationary pressures since early 2022. The Fed has raised federal fund rates 11 times since the policy tightening began in March 2022 and has not ruled out more hikes amid mixed economic indicators. In its most-recent meeting on Sept. 20, the Fed left rates steady, but said it could raise rates one more time this year. Analysts and economists are also divided over how long rates will remain elevated.
"Due to the uncertain direction of the Fed rate and the possibility of a prolonged period of high interest rates, the rates market has become more volatile," Alex Wong, head of M&A advisory for Asia at FTI Capital Advisors, said in an emailed response. "As a result, banks are being more cautious in their capital planning and are not rushing into the market."
In the Asia-Pacific region, most central banks followed the US Fed in raising rates, except in China and Japan. The Chinese central bank has cut interest rates and implemented other easing measures to help prop up economic growth, while Bank of Japan has kept its benchmark interest rate negative since 2016. Meanwhile, central banks in Indonesia and the Philippines recently raised rates.
Analysts said they do not expect a turnaround in bank capital raises, given the rates uncertainty and muted growth outlook.
"The economic outlook is for generally slower growth and higher-for-longer rates," said Gavin Gunning, a bank analyst at S&P Global Ratings. "This will in broad terms slow bank lending and hence bank appetite for capital."
Chinese banks' needs
Chinese banks are still expected to tap capital markets to raise funds for lending and regulatory purposes, analysts said.
"Some Chinese banks, especially those with elevated loan growth to entrench the recovery, may thus plan to raise capital to replenish their buffer," Gunning said. Chinese global systemically important banks are also likely to start issuing total loss-absorbing capacity instruments in preparation for its implementation in 2025, Gunning added.
Chinese authorities have cut rates and pushed banks to expand lending to help boost economic growth. Banks in China issued 15.73 trillion yuan of new loans in the first six months of 2023, the highest number in a half year on record, according to central bank data.
FTI Capital's Wong also expects Chinese banks to raise more capital to strengthen their balance sheets in the coming months.
US dollar appeal, equity issuance
A big chunk of the debt raised by Asia-Pacific banks in September was denominated in US dollars.
"Despite offering higher rates, US dollar-denominated bonds present an opportune market for issuers, including APAC banks, due to the strong investor demand to secure higher rates before anticipated rate reductions begin next year," Wong said.
On the equity side, the region's banks completed just two offerings and raised a combined $1.31 billion in capital, up marginally from $1.01 billion in the previous month but down from $2.35 billion raised in September 2022, according to Market Intelligence data.
National Australia Bank Ltd. raised $805.41 million in convertible bonds and Japan's Sumitomo Mitsui Trust Bank Ltd. raised $500 million in a follow-on offering.
