Asia-Pacific banks' debt raising activities may regain momentum in 2022 as the ongoing recovery from the COVID-19 pandemic is likely to drive credit growth and demand for capital, especially in China.
Aggregate capital raised by Asian banks through debt fell to $218.55 billion in 2021, the lowest in at least five years. That compared with $343.16 billion raised in 2020, according to S&P Global Market Intelligence data.
"We expect growth in bond issuances by Asia-Pacific banks in 2022, driven primarily by banks' increasing need to lend as economic activity continues to rebound from the pandemic-induced slump," research and analytics firm Acuity Knowledge Partners said in an email.
The Asia-Pacific region is entering 2022 with expectations of stronger economic growth amid improving vaccination coverage and reopening. The omicron variant of the virus has caused fresh waves of infections in many countries, though its drag on the economy is expected to be only temporary as its symptoms have so far been relatively mild, compared with earlier variants of the disease. China, the region's biggest economy, is likely to step up policy support to support growth, taking advantage of better-contained local inflation.
Grinding lower
China's economic slowdown and fewer issuances by the large and mid-sized banks in the region damped bond sales by lenders in 2021. Several other factors, including concerns over debt problems in China's property market and regulatory clampdowns on sectors such as finance and technology, also contributed to the decline, particularly at the country's big four banks.
"I think the major reason behind the dive of Chinese banks' bond issuances for years is that China started to stabilize its macro leverage ratio in 2017 in the wake of excessive credit growth," said Bruce Pang, Hong Kong-based head of macro strategy research for China Renaissance Securities.
Chinese banks raised a total of $119.96 billion via bonds in 2021, down sharply from $392.91 billion in 2017, according to Market Intelligence data. In 2020, the aggregate capital raised by Chinese banks was about $212.09 billion.
Policy support
According to Pang, policy easing by Beijing to ensure stable economic growth in 2022 will drive more bond issuances by Chinese banks. "Considering a muted outlook for China's CPI inflation, I think the country has more accommodative room for monetary policy maneuvers. ... I think China will see a moderate rise in credit growth, with structural easing for focused sectors," Pang said.
In India, banks became more conservative to keep bad loans in check and private-sector capital expenditure has been lackluster, said Nidhi Sharma, director of investment strategy at asset manager Lighthouse Canton. Now, "a positive change in trend" is starting to emerge, thanks to improved legal frameworks for bad asset resolution, stable economic outlook and rising demand. The government is also pushing to boost manufacturing and exports via tax and other incentives.
"We remain constructive on [Indian] banks. The macroeconomic factors and credit demand looks strong which should support any future refinancing," Sharma said. Indian banks' finances have "improved significantly" and lenders have tapped the strong capital markets to raise capital, Sharma said, adding that the government's capital support builds a level of comfort for the sector.
Tepid close of 2021
Asia-Pacific banks raised $9.43 billion in debt in the final month of 2021, thanks to Agricultural Bank of China Ltd.'s $6.28 billion and China Construction Bank Corp.'s $3.14 billion nonconvertible bond sales. That compared with $23.29 billion raised in November and $9.21 billion in October 2021, according to Market Intelligence data.
