Irandaily | No. 4298 | International Economy

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Southeast Asia Discovers Credit

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Fitch ratings agency said in July that the Philippines--an investor darling this year on the back of President Benigno Aquino’s reform efforts--could be in the first stages of a credit boom.
The Bank for International Settlements warned in June that Thailand and Indonesia were among emerging markets that have entered a danger zone of high credit growth.
Some investors worry the region could be on the same path that ended in credit crises in North Asian economies, including Hong Kong, Taiwan and South Korea, during the last decade when runaway household spending threatened the stability of banks.
“We have to watch this carefully,” said Mark Mobius, executive chairman of Templeton Emerging Markets Group, noting that some banks had rapidly grown their loan-to-deposit ratios.
“The problems that they have in Europe could come here if they are not careful.”
In regional giant Indonesia, whose broad middle class is expected to swell to 150 million people by 2014, housing loans vaulted 34 percent in May from a year earlier. The value of credit card transactions rose 12.3 percent last year, outstripping growth in the national minimum wage of 8.8 percent.
Indonesia’s BCA bank recorded loan growth of 41.5 percent in the first half of 2012, driven by house, car and corporate loans. Bank of the Philippine Islands’ loan portfolio jumped 20 percent in the first three months of 2012 as it targets another million clients this year from 5 million now.
The country’s banks have extended fixed-rate loans to as long as 10 years, bringing home ownership more within reach for middle-class Filipinos.
“We know interest rates will rise, so as much as possible, while rates are low we grabbed the chance,” said 32-year-old housewife Eleah Jugno, who with her husband recently secured a 2 million peso ($47,000) bank loan to build a house.
In a region known for its savers, credit card companies see signs that young Asians are more willing than their parents to go into debt. Banks are launching products aimed squarely at the so-called “Generation Y” born after the 1970s.
Hong Leong Bank brands its new “Mach” service as “Malaysia’s coolest bank,” with credit cards ready in an hour and car loans approved in 15 minutes. OCBC’s ‘Frank’ offers young Singaporeans multicolored cards with striking designs, one claiming that “Happiness is just a swipe away”.

Credit-Fueled Consumption
Economists for the most part welcome the rise of credit-fueled consumption, as easier access to banking services gives families unprecedented financial options and helps rebalance the global economy as American consumers retreat.
The explosion of credit is coming from a low base in poorer countries such as the Philippines and Indonesia, one reason why there seems little risk of systemic problems for now.
Philippine mortgage and car loans are both at historic highs, rising 40.5 percent and 20.6 percent respectively in March from a year earlier. But they only account for 6.7 percent and 4.2 percent, respectively, of total bank loans.
Consumption credit accounts for just 9 percent of Indonesia’s economy and total credit makes up only 30 percent of gross domestic product, compared with more than 100 percent in Malaysia, Vietnam and China. Only about 20 percent of Indonesia’s 240 million people and 30 percent of the 95 million Filipinos have access to formal banking services.

Credit Bubbles
The harsh lessons from Asia’s 1997 financial crisis have also made the region’s governments and banks wary of credit bubbles. Most major banks are well capitalized and have a strong track record of managing credit risks.
“There’s no reason to doubt banks’ risk management,” said Anand Pathmakanthan, regional banking analyst at Nomura. “Banks are not turning into gung-ho animals.”
Indonesia’s central bank moved to dampen the credit fever in March by limiting housing loans and setting minimum down payments for car purchases.
Its counterpart in Malaysia, where personal debt surged 64 percent in the four years to 2011, has cracked down on speculative mortgage lending and capped surging credit-card borrowing by low-income households.
Still, Indonesia’s loan-to-deposit ratio has risen to 84 percent from 80 percent a year ago, according to ANZ Research, topping its peak reached before the 2008 financial crisis.
In Malaysia, whose national savings slipped to 40 percent in 2011 from 43 percent four years earlier, some lower-income borrowers may have got in over their heads although the scale of the problem is unclear.

New Business Shares Surge in MENA

Regional companies raised a total of $1.29 billion through five initial public offerings (IPOs) in the second quarter of 2012.
This is almost three-and-a-half times more than the $374.77 million raised in the second quarter of 2011 and 15.46 times more than the $82.8 million raised in the first quarter of this year, according to Ernst & Young’s MENA second quarter 2012 IPO update, Albawaba.com wrote.
A total of $1.37 billion was raised in the IPO markets by regional companies in the first six months of this year as compared to $396.47 million in the first half of 2011--a growth of approximately 3.5 times.
Saudi Arabia’s Al Tayyar Travel Group led regional IPO deal sizes with its $364.65 million listing on the Tadawul, followed by Saudi Airlines Catering’s $354.09 million and the kingdom’s Najran Cement’s $226.58 million IPO, also listed on the Tadawul.
UAE-based NMC Healthcare that listed on the London Stock Exchange in April, came in at fourth position with a $187 million IPO followed by Oman’s Bank Nizwa which raised $158.49 million and listed on the Muscat Stock Market.
Phil Gandier, MENA head of Transaction Advisory Services, Ernst & Young said, “The sudden spike in IPO activity in the second quarter was an exceptional event within a consistently depressed MENA IPO market.
There were only four IPOs in the second quarter whose ticket sizes made the difference while most country markets remain slow. The summer period is traditionally quiet so the third quarter will most probably bring these levels down again.
“The Bank Nizwa public offer was a result of the regulatory changes in Oman’s banking sector which has recently approved Islamic banking, while the NMC Healthcare listing did not raise funds in the region, but in London. We expect the Saudi market to continue listing a steady but modest flow of new companies during the remainder of 2012,” he added.
Global IPO activity saw an improvement in second quarter 2012, according to Ernst & Young’s Global IPO update.
So far this quarter, a total of 206 deals has raised $41.8 billion, an increase of 5 percent by deal numbers and 141 percent higher by capital raised compared to first quarter 2012 ($17.4 billion via 196 deals).
However, this quarter was 46 percent lower by number of deals and 36 percent lower by capital raised than in second quarter 2011 ($65.6 billion). Even without this public offer of shares, the overall global IPO activity in second quarter 2012 ($25.8 billion) was 49 percent higher by capital raised compared to first quarter 2012.

Mexican Communities Fight Mini-Dams

Small-scale hydroelectric dams with a capacity of under 30 MW are seen by the authorities in Mexico as an important alternative for generating energy.
However, local communities reject them on the argument that they would cause social, economic and environmental damages, IPS wrote.
On the frontline of the struggle are communities in the southern states of Puebla, Tabasco, Veracruz, Oaxaca and Chiapas, where there is great potential to harness hydro energy with small dams.
“They claim the so-called mini-hydroelectric plants don’t have a negative impact on communities, but people already have the necessary information to know that any kind of dam has an impact,” activist Angelica Castro, coordinator of public advocacy and citizen participation in Services for Alternative Education (EDUCA), said.
EDUCA, a non-governmental organization in Oaxaca, has been working since 2006 with the people of 39 communities in six municipalities in that state that would be affected by a 510 MW dam that the state Federal Electricity Commission (CFE) plans to build on the Verde River.
The communities, which have joined together in the Council of People United for the Defense of Río Verde (COPUDEVER), are opposed to the construction of the hydroelectric plant, whose environmental and socioeconomic impact studies have not yet been completed.
There are at least 50 public and private small-scale hydropower dams operating in Mexico, most of which are obsolete. Together, they generate around 50 MW of energy.
The National Commission for Energy Savings (CONAE) estimates that the southern states have the potential to produce over 400 MW of energy by mini-dams, at 72 identified locations.
Although Mexico’s southern states are the country’s poorest, they are rich in water, because of the large number of rivers and the high levels of rainfall.
The non-governmental Mario Molina Center reports that in Oaxaca and Chiapas, nearly all of the locally consumed electricity is generated by renewable sources like wind, geothermal and solar power, as well as miniature dams.

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