Business | Banking
Asian banks race to raise capital as balance sheets start to strain
Japan's No 3 bank, Sumitomo Mitsui Financial Group, said it will nearly double a planned capital raising to $5.8 billion, and South Korea told its lenders to boost capital ratios, as Asian banks race to shore up balance sheets to avoid more damage from a global credit crisis.
- Reuters
- Published: 23:41 December 11, 2008
Tokyo: Japan's No 3 bank, Sumitomo Mitsui Financial Group, said it will nearly double a planned capital raising to $5.8 billion, and South Korea told its lenders to boost capital ratios, as Asian banks race to shore up balance sheets to avoid more damage from a global credit crisis.
Banks in Asia have largely avoided the massive credit losses that drove some of their US peers out of business, but a growing number are being forced to sell shares and bonds to raise funds as the global economy weakens, leading to more bad loans.
Even Australia's lenders, which initially appeared to be among the strongest left standing in the world, are showing signs of strain on their balance sheets..
Sumitomo Mitsui said it will raise 538 billion yen ($5.8 billion) via preferred securities, nearly double the 284 billion yen it had previously announced.
The bank also said it may issue more securities in the future. Sources told Reuters the total raised may eventually reach 700 billion yen.
SMFG shares rose 10 per cent, buoyed by relief that the capital raising would not dilute shareholder equity. Many other bank capital raisings have involved the sale of common shares at a discount, sending the lenders' stocks sharply lower.
"I think this fundraising is good news and will ease any pressure on Sumitomo Mitsui to issue dilutive common shares for the short term," said Kristine Li, banking analyst at KBC Securities in Tokyo.
"However, the future depends on the stock market, the economy, and the creditworthiness of borrowers."
Hit by worldwide financial turmoil, Japan slipped into recession in the third quarter for the first time in seven years.
Some economists think the downturn will last well into next year, putting more pressure on businesses, the property market and other assets and forcing banks to set aside more money for an expected surge in loan defaults.
Korea on guard
South Korea yesterday advised its banks to raise capital ratios, regulatory and bank officials said, to better cushion the impact of its economic downturn.
The latest call by the regulator may mean new shares or further cutting back on risky assets by banks, which already have planned to issue subordinated bonds worth a combined seven trillion won ($5 billion) this year.
South Korea's economy has been losing ground so fast that some economists see it heading into its first recession since the 1997-98 Asian crisis, while its banks, plagued by a persistent dollar funding squeeze, have turned off the taps for borrowers.
Expectations that global economic gloom will last well into next year, or longer, are weighing on markets, and lenders.
Some analysts in the West see little appreciable profit growth for banks for years to come, with fresh writedowns on credit losses quickly eroding big chunks of recent capital raisings.
"As a slew of dismal economic indicators has shown, the global economy is weak. We can't yet be optimistic," said Yousuke Hosokawa, treasury department senior manager at Tokyo's Chuo Mitsui Trust & Banking.
As the downturn hits Australia, the country's four major banks - National Australia Bank, Westpac Banking Corp, Commonwealth Bank and ANZ - are raising equity. Three of the banks have tapped $5.4 billion from share investors in just two months.
Japanese banks have been scrambling to raise cash as the weakening economy turns more of their customers' loans sour while sinking the value of banks' extensive stock market investments.
Banks also face more demands for loans from corporate clients as the worsening economy and a global credit squeeze makes issuing commercial paper too costly for companies.
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