Syndicated loans to Asia leaped in year 2000

Syndicated loans to Asia leaped in year 2000

NEW YORK (Dow Jones): Foreign banks that have gobbled up a bigger slice of the cake in Asia's record-setting syndicated lending market in 2000 could suffer an attack of indigestion.

Now that the global economy is slowing and Asia's banking systems have still not recovered from the effects of an international financial crisis three years ago, participants in last year's syndicated lending-fest may rue their eagerness to snaffle more market share.

Some risk management specialists have recently warned that as the U.S. economy brakes sharply and the global economy slows in its trail, sour syndicated loans may leave banks with a bitter taste.

Syndicated lending in the Asian region made a dramatic leap in 2000, according to preliminary data made available to Dow Jones Newswires Tuesday by the London office of research company Capital Data Loanware.

While the figures are preliminary, and could be revised later this week when Capital Data Loanware plans to publish its final estimate, they show a remarkable growth in the sector.

Syndicated loans arranged in Asia or for a borrower in Asia including the Indian subcontinent and Australasia jumped to $190.0 billion arranged in 2000, up a staggering 146 percent from just $77.2 billion in 1999 and 180 percent from the $67.8 billion in 1998.

Moreover, that's the biggest annual total for syndicated lending in the region recorded for at least the last decade.

Rather than marking a recovery from the 1997 Asian financial crisis, the jump in syndicated lending may reflect continuing fragility in domestic banking systems that has offered foreign rivals a loophole.

"Some of the local (Asian) banks remained in a weakened state and it makes sense they would need the international community's help in arranging credit," said Charles Peabody, senior bank analyst at Mitchell Securities Inc. in New York.

Major U.S. banks in particular "were looking for opportunities to grab market share," Peabody added, but warned that the banking systems in several Asian countries have still not been effectively reformed in order to make them more robust, with "interventionist practices and bailouts," in several countries acting as obstacles to reform, Peabody said.

In the early part of last year "there had been the belief that Asia was recovering, but it now appears that the region's economic growth is stalling a bit," said Tanya Azarchs, global research coordinator for financial institutions ratings at credit ratings agency Standard and Poor's in New York.

"The region has tended to have ups and downs in relatively short cycles," she added. "There are frequent pot holes that one runs into," Azarchs said.

Risk management specialists in the U.S. have recently warned there may be problems lurking in syndicated loans made by U.S. banks.

Al Sanborn, President and CEO of the Risk Management Association, a trade group based in Philadelphia, Pennsylvania, which also has a presence in Canada, Singapore and London, cautioned last week that there could be trouble brewing in the syndicated loan market.

Potential problem loans within the syndicated loans market account for $100 billion, or 5 percent, of all outstanding syndicated credits led by U.S. banks, according to the RMA.

Peabody warned about problems related to cash-strapped telecoms and Internet companies looming, which could hurt the syndicated loans market.

"Lending to the telecoms media and technology sector is a worldwide phenomenon and there is a significant tie between U.S and Asia...There's a lot more fallout to come in terms of recognition of problems in that sector," Peabody said.

In parts of Asia, the quality of bank lending has not improved much since 1997 and signs of slowdown in Japan, the region's economic cornerstone, are likely to exacerbate any problems there and in some surrounding economies.

Most U.S.-based economists expect Japan's gross domestic product to grow not much more than 1 percent in 2001. Last year, a string of major Japanese insurers and companies came close to collapse, with a few filing for bankruptcy protection.