Asian Firms Not Facing Credit Crunch: Moody's

Source : The Business Times, Thu, Sep 06, 2007

ASIAN companies do not face liquidity issues even as the freeze in the international credit markets continues because, traditionally, they rely more heavily on bank loans, said Moody's Investors Service yesterday.

'Crucially, Asia's banks are generally showing no reluctance to lend to corporates in the current environment,' said Brian Cahill, Moody's managing director for corporate finance in the Asia-Pacific.

If Asian corporates cannot go to the bond markets, they go to the banks, whereas in the West, for corporates, the bond market is one of their main funding routes along with the issuing of commercial papers, added Clara Lau, Moody's chief credit officer.


It also means that Asian banks have been quick to use the opportunity to charge more for their loans, said Ms Lau.

She said that banks had been lending very cheaply for the last two years because they had been flush with cash.

'Certainly, banks (now) have become more cautious in terms of lending and taken this opportunity to reprice loans for lower grade companies,' said Ms Lau.

A report co-authored by the two found no evidence so far of a reduction in the ability or willingness of Asian banks to lend to companies.

'As the sub-prime exposures of Asian banks are low relative to earnings and capital, their capacity to lend has not been really affected.

'Furthermore - except in Australia - Asia's banks are amply deposit-funded rather than capital market-funded, and so are less exposed to the wholesale funding turmoil,' the report said.

It also found that while significant volatility has occurred in credit markets recently, no indications have emerged of rated corporates in the Asia-Pacific, excluding Japan, experiencing systemic problems in getting funding in the wake of the US sub-prime crisis.

'Furthermore, Moody's has reviewed its rated portfolio for the region and concluded that, broadly, it faces no imminent challenges if the cross-border bond market remains, as it is now, essentially shut,' said the report.

The reason they gave was that, traditionally, corporates in this region relied more heavily on the banking system for loans than their counterparts did in other parts of the world.

As the same time, some large domestic bond markets, such as those in South Korea, continue to function normally as a funding source for domestic companies.

Another factor is that high-yield issuers - which are most exposed to any flight-to-quality risk in Asia - only recently became active again in the region and many had taken advantage of, until recently, easy lending conditions to pre-fund their capital expenditure and financing needs.

'As such, many do not face any refinancing risk in coming months,' the report said.

Ms Lau said that in the last two years, because of the liquidity situation, high yield issuers or lower quality corporates have been tapping the bond markets.

Last year and in 2005, some 60 per cent of the corporates rated by Moody's were high yield or non-investment grade.

However, these corporates are considered very bankable credits in their home countries, and, as a result, have committed bank facilities, which they can access, if needed.

Still, Moody's does see some risk for a small number of companies - 10 - with low ratings, weak liquidity and operating performances, as well as imminent refinancing needs.

Ms Lau declined to name the 10 companies. But crucially, some of these 10 are expected to have ready access to banks.