US slowdown, closures pose lending challenge

PUBLISHED : Friday, 16 May, 2008, 12:00am
UPDATED : Friday, 16 May, 2008, 12:00am

Banks will face a challenging task expanding their corporate lending this year because of the economic slowdown in the United States and the factory closures in southern China, according to Standard Chartered Bank (Hong Kong).

Despite the higher borrowing costs, companies would still seek financing as the rates remained at a low level, the bank said.

Gloria Chow Lee Cheuk-kuen, the wholesale banking head of origination and client coverage, said interest margins for financing had increased by 30 to 100 basis points since the subprime crisis began.

'It's hard to predict whether the interest margin would further rise, it all depends on the market situation,' she said. 'But I don't think it will go down in the near term as the financial markets are still volatile.'

However, a banker from a European lender expects interest margins would increase further this year because the global credit crunch was unlikely to abate soon. 'The US may go into a recession, which will affect Hong Kong's exports-related business, and we still don't know whether global lenders' write-downs on their subprime exposure have bottomed out,' the banker said.

Ms Chow said her bank's wholesale banking recorded high double-digit growth in the first quarter despite flat growth in loans and decline in initial public offering-related business, thanks to strong growth in businesses such as foreign exchange and new customers.

As such, despite signs of slowing income growth in the second quarter, the bank remained cautiously optimistic on the business outlook for the whole year, she added.