Asian companies are emerging from the global economic recession with a diminished reliance on western sources of capital and a new focus on local Asian markets for growth.
New research from Greenwich Associates reveals that the largest companies (annual turnover $500 million and over) across Asia (excluding Japan), are reporting improved access to credit and growing demand for funding for growth-oriented capital expenditures and M&A. These findings demonstrate a positive change in the business environment much more dramatic than that experienced to date in Europe and the United States. The strength of Asian markets relative to those in the West during the crisis and the speed with which Asian economies are recovering as the recession subsides has prompted companies in the region to look closer to home for credit and growth:
In 2007, 58% of Asian companies credit providers were foreign banks (Western and Japanese) and only 42% were local banks. Over the course of the financial crisis, local banks share steadily grew to 45% in 2008, reaching nearly half in 2009.
Companies expanding into new foreign markets generally form relationships with banks local to the new market or with a global bank with strong capabilities within the country or region. Last year, the share of Asian companies using a bank for cross-border services within Asia increased to 66% from 60% in 2008; meanwhile, the share of companies using a bank for cross-border services in Western Europe and the United States was flat at 34% and 37%, respectively. Demand for cross-border banking services to Japan and Australia/New Zealand also increased considerably.
Over the past decade, there has been a lot of talk about the extent to which Asian economies have decoupled from those of the west, says Greenwich Associates consultant Markus Ohlig. Our data suggests that the global crisis itself might have been the biggest driver of decoupling by forcing Asian companies to turn to local sources of funding and providing opportunities for Asian companies to generate growth at home in the face of depressed demand from export markets.
Big Opportunity for Local Banks
Although Asian companies are increasingly turning to Asian banks for credit and other essential services, companies are not yet entirely convinced of the staying power of local providers. In 2008, 44% of Asian companies that used local banks as credit providers said they were confident that these banks would persist as reliable lenders in the future. In 2009, that share fell to 37%. Driving this shift was the relatively rapid expansion of local banks client bases. This expansion was enabled in large part by the retrenchment of Western banks, which pared relationships with many Asian companies seen as falling outside their core group of most profitable corporate clients.
Because these Western banks generally tried to retain their most valuable clients, companies still using these banks as lenders in 2009 are increasingly confident in the durability of these relationships, having survived the cut-backs. In fact, the share of clients of Western banks expressing confidence that these banks will remain reliable lenders in the future actually increased to 33% in 2009 from 30% in 2008.
Local banks took advantage of the opportunity provided by the crisis in the banking industry in the United States and Europe by stepping in and offering credit to Asian companies at competitive rates, says Markus Ohlig. Approximately one third of Asian companies rated their local banks as among the markets most competitive in 2009, up from one quarter in 2008. Having gained market share by providing affordable credit during the crisis, local banks now have the opportunity to convince Asian companies about the sustainability of these relationships and to solidify these gains.
Asian banks are also gaining ground in cash management, in which a growing number of companies are turning to local providers to meet their domestic business needs. In the past, Asian companies often used Western banks for both international and domestic cash management due to the large differential in capabilities between these global providers and local banks. While companies continue to rely on Western players for international cash management needs, many have begun to shift domestic cash management business to local banks. Asian banks have upgraded the quality of their cash management platforms to an extent that, in most countries, there are at least one or two banks now viewed as credible options by local companies. The cash management capabilities of HDFC in India, Korea Exchange Bank of Korea, and China Trust Bank of Taiwan are now all seen as being on par with foreign banks within their domestic market. In fact, some local Asian banks now boast treasury management platforms comparable in technology to the best systems offered in the West. The reason: These banks have no legacy systems with which to contend.
D.C.