Asia-Pacific Liquidity Study Shows Reliance on Domestic Banking Systems
Fitch Ratings’ liquidity study on Asia-Pacific corporates points to lower levels of liquidity than their developed market peers. Attributable reasons include the lack of committed bank facilities in some countries and the general reliance upon short-term debt.
Compared with European developed market corporates that have sourced a larger percentage of their debt from the bond market, partly as a reaction to their bank systems’ weaknesses, Asia-Pacific financial institutions have strong health thus Fitch’s Asia-Pacific corporates remain 45% funded by banks (Europe, Middle East and Africa (EMEA): 30%).
The culture of ‘relationship banking’ continues in the Asia-Pacific region, where banks extend short-term funding to corporates partly based on long-standing relationships consideration. However, Fitch prefers corporates to have committed bank funding, as if Asia-Pacific regions were to witness another financial crisis, the agency believes that weakened corporates may not find their banks so friendly when renewing lines. The study finds that some large corporates, that access diversified funding sources, have mitigated such regional practices and have procured and are prepared to pay for the benefits of committed funding and access long-term debt.
The study covers 150 corporates with international ratings across the region. It highlights the apparent lower levels of liquidity for the South Korean portfolio where companies have confidence in accessing an active and deep domestic commercial paper and bond market, yet a high percentage of debt is less than three-year funding. It also details the limited options for funding for Chinese corporates with expansion plans.