Bank lending to emerging markets down 20%

by | April 11, 2013 4:59 pm



Lending by banks to emerging markets fell sharply last year, while Western banks continue to deleverage, a private debt fund manager has said.

In 2012, $276 billion of new syndicated loans were made to companies in emerging markets compared with $343.2 billion in 2011, according to Cordiant, the emerging markets investment manager.

Even in Asia, which has in the past attracted most of developing markets bank lending, new loans fell by 14 percent to $121.6 billion last year from 2011, Cordiant’s figures show.

The gap between demand for financing from companies in emerging markets and supply from Western banks continues to widen as the eurozone debt crisis continues, David Creighton, president and CEO of Cordiant, said in a

banking sector is not yet out of the woods,” Creighton said.

Regulators will continue to put pressure on banks to rein in their balance sheets and politicians in home countries will keep leaning on banks to persuade them to use any spare lending capacity they have inside the countries, he added.

“It may be years before Western banks return to their position as a reliable source of funding for emerging market businesses,” Creighton said.

He added that his fund was receiving requests for loans from quality emerging market business, proving that “demand is definitely there” and this means that spreads on loans to emerging market companies have remained “exceptionally high given the corresponding fall in yields on emerging market bonds.”

“Spreads on private loans are at least 200 basis points higher than in 2008 while emerging market bonds have moved in the opposite direction – with yields compressing so rapidly that many investors are concerned that bond yields are overheated,” Creighton said.

Despite the increase in issuance of bonds by emerging market companies over the past year, the vast majority of businesses in developing countries have seen no rise in funding because bond investors tend to focus on well-known corporations which have been concentrated in the energy, mining and telecoms sectors, Cordiant said in the statement.

“The boom in emerging market bonds has attracted a lot of fast-moving funds that have reduced the cost of borrowing for a small slice of emerging market companies,” Creighton said.

“This has done little for the majority of large and medium sized emerging market companies that are reliant on bank lending.”