SYDNEY • Syndicated loans in the Asia-Pacific have fallen this year to their lowest level in seven years as dealmaking activity has been hit by global political uncertainty and volatile financial markets.
The drop in such loans adds to the pressure on commercial banks whose lending books already face competition from low bond yields, amid increases in their own funding costs from regulatory changes.
Banks in the region have lent a total of US$281 billion (S$391 billion) so far this year via syndicated loans - where a handful of banks take the initial loan before other institutions join and widen the lending pool - according to data from Refinitiv.
That is down nearly 20 per cent on the same period last year, when US$348.3 billion worth of such loans were made, and is the lowest since the US$227 billion loaned in 2012. These loans are typically used for large deals or projects where the funding needed is too great a risk for a single bank to take on.
"The latest lending data suggests businesses and investors are sitting on their hands rather than engaging in activity that needs debt financing," said KPMG Australian chief economist Brendan Rynne.
"The likely reason for this is the high level of uncertainty the world is currently facing. The geopolitical ring of fire is hotter than it has been for some time," Dr Rynne said.
The value of announced merger and acquisition (M&A) deals involving Asia-Pacific companies reached US$634.2 billion in the first eight months of the year, down 35.2 per cent compared with the same period last year, and the lowest volume since 2014, according to Refinitiv.
Bank of China remained the most active bank in the region as it arranged US$30.6 billion worth of new loans in the past eight months, but that amount was down from US$50.1 billion by this point last year.
HSBC was second, having been involved with US$17.9 billion of loans, compared with US$14.4 billion last year. China's Bank of Communications' share also grew sharply to US$15.8 billion in the past eight months, from US$2.6 billion in the same period last year.
A US$11.6 billion refinancing by CK Hutchison Holdings was the largest syndicated deal so far this year. The transaction, led by Citigroup and HSBC, was to refinance a bridging loan held by its Italian telecommunications unit Wind Tre.
"A range of factors have impacted loan volumes, including subdued M&A activity, which is partially due to the increasing trade war rhetoric, curtailed offshore acquisition activity among Chinese firms and volatile investment markets," said Mr Mahendra Kumar, Deutsche Bank's head of loan origination in Asia.
"With volatility in the bond markets, we expect borrowers to move back some of the flow transactions to the loan markets after a prolonged bull run in Asian high yield."