Asian banks warm to bond market innovation

Thu Apr 5, 2012 3:35am EDT
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By Rachel Armstrong and Kelvin Soh

SINGAPORE/HONG KONG (Reuters) - A shortage of U.S. dollars, new banking regulations and strong investor demand means Asian banks are set to help spur long-awaited innovation in the region's debt capital markets.

Singapore is consulting on new guidelines to help its banks issue covered bonds and Hong Kong plans to study investor appetite for similar products, while banks across Asia are looking at forms of debt previously unseen in the region, such as hybrid or perpetual bonds.

"Every institutional investor is waiting for another investment to diversify their portfolio, especially those who already own unsecured bonds," said Warren Lee, head of structured financing solutions at Standard Chartered in Hong Kong. Although most Asian banks are flush with local currency retail deposits, many have been struggling to get access to enough U.S. dollars, so they are looking at new ways of issuing bonds to raise these funds.

In Singapore, for example, Fitch Ratings estimate that while local banks' overall loan-to-deposit ratio is around 90 percent, the figure for their U.S. dollar trading books exceed 100 percent.

The incoming Basel liquidity rules are also encouraging regulators in the region to help develop markets for highly-rated liquid assets that banks can hold to comply with more stringent capital requirements, such as covered bonds.

All these moves are likely to be lapped up by investors, with demand for Asian bank bonds strong given their reputation as being some of the safest lenders in the world in which to invest.

Demand for unsecured Asian corporate bonds has been buoyant so far this year, with issuance in first quarter alone more than half that seen for the whole of 2011.