In a speech given to members of Hong Kong's banking community, Avi Bindra - the outgoing head of Citibank's loan syndication business - warned that the Asian loan market is showing dangerous signs of going back to the excesses of 1997.
The Thomson Markets Insight Lunch speech showed that loan volume is increasing, spreads are tightening, and sector concentration is rampant. Bindra - an extremely candid banker at the best of times - was disarmingly so in this speech. His assertion that loans are priced below bonds because bankers can cross sell other products on the back of the loan, was a frank and public admission of what many already suspected but dared not voice.
He outlined the trends that are shaping the Asian loan market into its present state. Many of the deals are refinancings of bonds and loans taken out in 1998 and 1999. Now that spreads have come right in, corporate treasurers are going to the loan market to get cheap refinancing. There is also heavy concentration of lending to the telecom sector. Part of this telecom financing is in the form of leveraged lending to telecom companies seeking acquisitions in the region.
Furthermore, Japanese banks are returning to Asia, albeit not with the same pace and dedication with which they dominated the market in 1997. In Japan, companies are slowly breaking their keiretsu links with their house banks and that is responsible for a huge increase in syndication opportunities for foreign banks.
Looking ahead, Bindra sees that there will be further consolidation among the banks, which will increase the competition for lending to the top tier credits. Spreads will continue to fall by 25 basis points to 50 basis points across the region. In the meantime, small and medium sized companies will continue to be ignored.
Summing it all up, Bindra said that he had a strong sense of deja vu. "With the way the markets are going it seems like the financial crises of 1997 was something which happened a long time ago," he said. He urged the bankers listening not to forget what happened and not be caught by the hubris of thinking that because they survived the last crisis it won't happen again.
The speech was something of a valedictory as Bindra is retiring from Citibank at the end of the year. His rather gloomy projections of cheap credit, easy liquidity and deteriorating credit made somewhat sober listening. He did not tell the audience what he is going to when he leaves Citibank. But his pessimism towards the market suggests that perhaps he might leave the loan business alone for a while.
