Tigers Outgrowing Traditional Bank Loans

Noel Quinn at HSBC writes, “Asia’s funding markets are stirring, and all the indications are that the continent is on the cusp of an unprecedented period of financial innovation that will provide the fuel for its next period of expansion.”

While the first chapter that propelled Asia into an industrialized powerhouse was cheap and easy, the second one seems to need a little pampering—flowers and a dinner perhaps? But financial funding innovation could make things more interesting and affordable.

asia loans

Structured notes and term loans are not new to Asia, but if traditional bank loans become harder to come by because of capital droughts caused by any potential “Yellen taper” (so named after Janet Yellen, Chairwoman of the U.S. Federal Reserve) or because of any new regulations from Basil III, these and other non-traditional funding vehicles could become increasingly popular.

Moreover, non-banking facilities like hedge funds, private equity, and alternative investment funds might also provide the much-needed funding to keep the Asian tigers well-fed.

The demand side pressure in Asia is real, and according to Quinn, “an estimated US$11.5 trillion in infrastructure alone between 2010 and 2030 to accommodate another 650 million people moving to cities” is needed.

That said, according to Quinn, evidence reveals that syndicated lending—loans from an aggregate of lenders usually to one borrower—to countries in Asia excluding Japan rose to US$462 billion in 2013, an increase of 51% from 2012.

If this data is correct then obviously the demand is there, but can the banking establishment and other financial entities provide the means and capabilities to handle such demand?

Knowing the banking and finance industry, I’m certain they’ll find a way… my question is, will the world and Asia be ready? Or are we instead looking at the beginning of a future economic crisis?

Then again, when hasn’t financial credit innovation led to a massive bubble? So grab a seat at the table if you like, secure something to your ass for protection, and hold on for the ride.

Read Noel Quinn’s entire article here and decide for yourself.