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ASEAN banks are set to step up bond issuances as loans growth outpaces deposit inflows, while Singapore lenders have increasing foreign-currency funding needs for their inter-regional expansion, said Moody's Investors Service.
In a report on Monday, Moody's said that Asean banks will increasingly turn to capital markets, particularly by issuing bonds, in order to fund their lending operations.
"Loan growth in most parts of the Asean region has steadily outpaced deposit inflows over the past several years, leading banks to use most of their stock of deposits to fund loans," said Alka Anbarasu, Moody's assistant vice-president and analyst.
In addition, some banks have turned to their excess liquid assets as an alternative source of funds, a source Moody's believes is also diminishing.
"Going forward, we expect that further growth will also be driven by funding needs, rather than solely by choice. Therefore, funding and liquidity will increasingly become factors that differentiate Asean banks' credit profiles," said Ms Anbarasu.
Outstanding bonds and borrowings (excluding interbank loans) by rated Asean banks increased by 71 per cent to US$168 billion at end-2013 from US$98 billion at end-2009. This was in part driven by opportunistic market tapping at a time when credit spreads were low and investors' appetite for Asean bank debt was growing.
Loan-to-deposit ratios (LDRs) rose to around 90 per cent at most Asean banks at end-2013 from the low 80 per cent-range at end-2009.
Indonesian banks appear the most stretched, particularly in local-currency funding. Banks in Thailand and Vietnam have some of the highest foreign-currency LDRs, indicating elevated foreign-currency funding needs.
Banks in Singapore and Malaysia also have increasing foreign-currency funding requirements, owing to their active pursuit of intra-regional expansion, said Moody's.
Singapore banks' LDR ratio has been steadily rising, and in June reached 110.6 per cent, the highest since 1998.
Singapore's loan growth is expected to remain around the 10 per cent level while deposit growth is likely to languish near zero, said a DBS Research report at end-September.
As for Singapore's three domestic banks, they have lower Singapore dollar (SGD) LDR given their bigger branch network compared with the foreign banks.
DBS Group Holdings, South-east Asia's biggest bank, said at end-September, group LDR was 86 per cent while SGD LDR was 78 per cent.
DBS, which has also been very aggressive in growing its trade loans, said non-SGD LDR was 95 per cent.
OCBC Bank said group LDR at end-September was 85.5 per cent; SGD LDR was 80.2 per cent and USD LDR was 99.5 per cent.
United Overseas Bank said at end-September, SGD LDR was a higher 94.1 per cent and USD LDR was 70.6 per cent; group LDR was 85.8 per cent.