Asian Financial Crisis 2.0: Banking system creaks under pressure of companies struggling to survive coronavirus pandemic
- Asia-Pacific faces an environment ‘at least as challenging as the 1997-98 Asian financial crisis for borrowers,’ says S&P Global Ratings
- Asian banks wrestle with moral hazard of doling out capital to zombie companies
Chinese property developer Yida China is battling to avoid defaulting on its debt as the coronavirus pandemic slams sales, borrowing costs spiral and police detain a director on suspicion of embezzlement.
Heavily indebted developers like Yida act as an early warning system for trouble in Asia’s financial system because their foreign-denominated debt is frequently traded and they are a large contributor to local government budgets in the world’s second-largest economy.
Alarm bells are ringing as Asia’s financial system strains to fund struggling companies, from such small Chinese developers to Indonesian oil exporters and Singaporean airlines.
As the International Monetary Fund predicts a global slump unmatched since the Great Depression, the region’s borrowers are queuing up for credit. Only the largest, safest names are confident of securing funds.
“Despite the slow return to normalcy in mainland China, the sharp rise in Covid-19 cases in the rest of the Asia-Pacific is translating to an environment at least as challenging as the 1997-98 Asian financial crisis for borrowers,” said Terry Chan at credit ratings agency S&P Global Ratings.
The region’s bankers are struggling with the moral hazard of propping up deadbeat borrowers under pressure from governments and the public to protect jobs.
