Region's companies not always cash rich

PUBLISHED : Wednesday, 01 February, 2012, 12:00am
UPDATED : Wednesday, 01 February, 2012, 12:00am


Asia-Pacific companies had lower levels of liquidity than their counterparts in developed markets, and many lacked the support of committed long-term bank funding, rating agency Fitch said, dismissing a commonly held belief that companies in this region are cash rich.

In a study of 150 Asia-Pacific companies rated A-plus and below yesterday, Fitch said Asia-Pacific companies, particularly in China, Japan and South Korea, relied more heavily on short-term, uncommitted funding.

Asia-Pacific companies were also more reliant on banks to fund their loans, the study found.

About 45 per cent of the total debts of Asia-Pacific companies were financed by banks, compared with only 27 per cent among their Western peers.

The culture of 'relationship banking' in the region meant corporates expected to renew their funding lines with banks, but could still find themselves cut off from credit lines if the region faced another financial crisis, Fitch said.

Fitch estimated that 22 per cent of Asia-Pacific companies' liquidity would be impaired this year if existing bank funding lines were not renewed, up from 12 per cent last year.

Separately, banking industry professionals worldwide listed liquidity, credit risk and macroeconomic risk as the top three threats to the banking industry, a survey by auditing firm PricewaterhouseCoopers and London-based Centre for the Study of Financial Innovation had found.

The survey of more than 700 bankers, banking regulators and industry observers in 58 countries found that the industry was anxious about the euro-zone crisis and its knock-on effect on the sector, including the possibility of more bank failures and bailouts.

'The overall survey paints a very bleak picture of the global banking landscape,' said Jimmy Leung, PwC's China banking and capital markets leader. 'It shows a fragile banking system beset by threats and uncertainties.'

But Frederic Neumann, co-head of Asian economic research with HSBC, said the impact of European deleveraging on Asia's lending was not as great as expected.

Lending to Asia by European banks declined in the third quarter last year for the first time since the global financial crisis, falling by US$51 billion, he said.

But European banks' lending to the region still totalled US$1.42 trillion, according to data compiled by HSBC.

When it came to individual countries, European banks increased their exposure to Hong Kong while maintaining their lending to Indonesia and India, and cutting back on loans to China, Australia, Korea, Singapore and Taiwan, Neumann said.

He was optimistic about lending in Asia. 'First, liquidity in Europe has improved, for the time being, easing pressure on Asia as well,' Neumann said.

'Second, there are signs that funding conditions for local banks have eased of late in Asia, allowing them eventually to step into the void left by departing Europeans.'