APAC banks' capital raises may rebound after slumping to 11-year low

Asia-Pacific banks' capital market transactions could get a boost from improving market sentiment over possible US Federal Reserve rate cuts this year, after their aggregate debt and equity issuance volumes plunged to an 11-year low in 2023.

Banks in the region raised $238.10 billion via debt and equity instruments in 2023, the lowest in the last 11 years, according to data compiled by S&P Global Market Intelligence on a best-efforts basis. The 2023 total was down from $289.89 billion raised in 2022 and $311.26 billion in 2021, the data shows.

Aggregate capital raised by banks in Asia-Pacific through debt securities in 2023 fell to $200.21 billion, also the lowest in at least 11 years. The debt figures covered in the analysis include bonds, senior debt and preferred securities.

"Overall, market sentiment on the anticipated rate cuts by the [US] Fed may encourage borrowing and investment, potentially boosting capital market transactions in Asia-Pacific as businesses seek financing opportunities in a more favorable interest rate environment," said Oluchi Ikechi-D'Amico, EY's Asia-Pacific strategy and transactions, capital markets leader.

Market sentiment remained muted throughout 2023 as uncertainties over inflation, rates and geopolitical tensions hit economic growth prospects across the world. Higher rates across most of the markets drove funding costs higher for investors, dragging issuance and M&A transaction volumes. While the US Fed is expected to start cutting rates this year, the overall outlook for "2024 remains patchy with weaker growth expected in most major economies, including the US," according to Market Intelligence's The Big Picture 2024 – Capital Markets Outlook report, issued in November 2023.

Hence, a rebound in issuance volumes will ultimately depend on the rate at which inflation in the US and other global markets drop and the speed at which the US Fed and other central banks conduct their interest rate cuts, Ikechi-D'Amico said.

Mainland Chinese banks

One of the key drivers for the decline in Asia-Pacific bank capital raising in 2023 was a plunge in such activity among large mainland Chinese banks, Market Intelligence data shows. In total, mainland Chinese banks raised $76.1 billion in 2023, a sharp decline from the $123.2 billion raised in 2022 and down more than 60% from the total capital raised in 2013.

Still, major mainland Chinese banks, which are designated as global systemically important banks (G-SIBs), may drive issuance volumes as they near a Jan. 1, 2025, deadline to meet total loss-absorbing capacity requirements. The four G-SIBs must fill an estimated $550 billion capital gap to meet the requirement, S&P Global Ratings said in a January 2023 report.

"While an apparent solution to meet the total loss-absorbing capacity (TLAC) requirements starting in January 2025 would be for Mainland Chinese banks to tap onto the capital markets to fundraise additional capital to support lending activities, a large question remains on who will be taking on these new loans," Ikechi-D'Amico said.

On the contrary, Japanese banks' total capital raising surged nearly 60% to $56.8 billion in 2023 from $35.6 billion in 2022, according to Market Intelligence. India was the only other major economy in Asia-Pacific where banks raised more capital in 2023 than in 2022. Indian banks raised an aggregate $6.4 billion in 2023, up from $2.5 billion in 2022.

– Click here to download a spreadsheet with data featured in this story. – Click here to read our recent story on how IPO activity could recover in Hong Kong in 2024.

Marginal spike in equity issuance

Asia-Pacific banks raised $37.89 billion via equity instruments in 2023, up from $27.18 billion a year ago, the data shows. The 2023 aggregate was still lower than the $40.26 billion banks raised in 2021 and $49.02 billion in 2020.

"In the rising interest rate environment, the preference for equity fundraising means that businesses get to strengthen their capital positioning and take advantage of favorable valuation opportunities without incurring additional debt," said Ikechi-D'Amico.