19 Dec, 2023
Asia-Pacific bank capital raises drop in November as uncertainties abound
By Zia Khan and Marissa Ramos
The effects of economic uncertainty and persistently high interest rates played out among banks in Asia-Pacific, with lenders' capital raising slipping in November.
With significant deals largely absent in several key markets, banks raised $15.48 billion in equity and debt in November, down from $30.60 billion in the same month last year, according to S&P Global Market Intelligence data, compiled on a best-efforts basis. The total amount raised was also sharply lower than the $25.78 billion in October 2023, when Chinese banks' drove volumes, the data show.
Transactions were driven mainly by some lenders in China and Australia in the month. Fundraising activity in the form of IPOs, follow-on equity offerings, bonds, senior debt and preferred securities also stayed tepid in other geographies.
China Construction Bank Corp.
Cautious about 2024
Some analysts are cautious about any pickup in capital market activity in 2024 as global economic growth is expected to slow. The US Federal Reserve is on pause after raising rates since early 2022 to tamp inflation. Most economists expect the Fed to seek a soft landing for the US economy and reverse the interest rate cycle in 2024. Still, expected higher-for-longer rates will likely act as brakes on economic growth. The International Monetary Fund expects global growth to slow to 3% in 2023 and 2.9% in 2024 from 3.5% in 2022.
Corporate debt issuance in Asian emerging markets is likely to be similar to 2023 levels, analysts at RBC Wealth Management said. "These [Asian] corporations' large-scale funding needs remain muted as macro uncertainty is holding back large [capital expenditure] and investment plans," RBC said. "At the same time, domestic funding channels such as banks and local bonds are accessible at more attractive levels; this is especially true for China corporates."
In addition, RBC analysts expect new issuance to be skewed toward investment-grade securities, reflecting overall market risk aversion.
There is some room for optimism, however. "If economic strength persists in the face of uncertainty and the [US] Fed can end its tightening cycle soon, animal spirits in the capital markets could grow, leading to a resurgence in issuance activity," according to S&P Global Market Intelligence's 2024 Capital Markets Outlook, published in November.
Other deals in November included capital raises by Bank of the Philippine Islands, DBS Bank Ltd., National Australia Bank Ltd., Commonwealth Bank of Australia, Hong Kong's Dah Sing Bank Ltd. and The Korea Development Bank.
*Click here to download a spreadsheet with data featured in this story.
*Click here to read our recent story on cost-to-income ratios of Asia-Pacific's largest banks in the quarter ended Sept. 30, 2023.
Equity issuance by banks in Asia-Pacific fell in November to $870 million, from $1.82 billion a year ago, Market Intelligence data shows. The region's banks raised $2.36 billion in October.
Notable offerings in November included Westpac's $750 million convertible bond and India-based ESAF Small Finance Bank's $55.6 million IPO. ESAF, which focuses on customers that bigger banks do not serve, is at least the second Indian small finance bank that completed an IPO in 2023 amid positive momentum in the country's capital markets. Earlier in July, Utkarsh Small Finance Bank Ltd. completed its IPO on the domestic stock exchange, raising $60.9 million.
Local Indian investors are actively supporting equity markets, said Mahesh Nandurkar, equity analyst at Jefferies.
"Domestic investors have emerged as a big support for Indian equity markets and appears sustainable," said Nandurkar.
Jefferies estimates the steady state domestic annual flows would be $30 billion. Two-thirds would be in the form of a stable inflow into domestic equity mutual funds through systematic investment plans, and the balance by way of pension funds and insurance flows.
