MS Three Reasons Why Credit Growth is Booming

Asia Economics | Asia Pacific Morgan Stanley Asia Limited Idea

Chetan Ahya Chief Asia Economist

Morgan Stanley Asia (Singapore) Pte.

Why Credit Growth is Booming Derrick Y Kam Asia Economist

Morgan Stanley Asia Limited Bank credit growth in Asia ex China has picked up to its Jonathan Cheung strongest in 18 years. Surging capex, booming trade and the rise Economist in PPI inflation explain this acceleration in credit demand. We Kelly Wang expect the capex super-cycle to sustain the strength in credit Economist growth. Morgan Stanley India Company Private Limited

Sudhanshu Agarwal Key Takeaways Economist Asia ex China’s credit growth has accelerated to 8.5%Y, the highest in 18 years. Meanwhile China, with its counter-cyclical growth model, is slowing leverage.

With the region’s growth being driven by capex and exports, corporate sector loan growth is the main driver for overall credit growth acceleration.

PPI inflation and nominal industrial production growth have also risen to the highest levels since the 2000s, adding to corporate credit demand.

As non-tech capex and non-tech exports are now picking up, improving labour market conditions are lifting household loan growth as well.

As the capex super-cycle continues, we see Asia ex-China bank credit growth staying strong.

In this report, we delve into which segments and geographies are driving stronger credit growth in Asia ex China.

Exhibit 1: Credit growth in Asia ex China at a 18-year high Asia ex China bank credit growth (%Y) 10% Indonesia 14% it growth 9%(LCU, %Y) 8.5% Malaysia 14% 9.6% Asia ex China bank credit growth (%Y 8% Philippines Thailand 7% 12% 12% 6% Nov-18: 10.7% 5% 10% 10% 4% 3% 8% 8% 2% Dec-19: 8.3% 6% 1% 0% 6%

May-12 May-13 May-14 May-15 May-16 May-17 May-18 May-19 May-23 May-24 May-25 May-26 May-18 May-07 May-09 May-11 May-20 May-21 May-22 May-16 May-20 May-22 4%

May-24 May-25 May-21 May-26 May-20 May-22 May-23 4% May-17 May-06 May-19 May-08 May-21 May-10 May-23 2% Source: CEIC, Haver, Morgan Stanley Research, Note: We calculate the Asia ex China aggregate by weighing it using nominal annual outstanding bank credit in USD terms.

For important disclosures, refer to the Disclosure Section, located at the end of this report.

Details Bank credit is still the most important source of macro funding by far: In Asia, the banking sector remains one of the most important providers of credit, considering that the corporate bond and private credit markets are not mature yet. In EM Asia economies, bank and non-bank finance companies account for over 60% of the flow of resources to the commercial sector. Outside of internal accruals, the order of sources of macro funding is first loans from banks plus the non-bank finance sector, followed by equity issuance at a distant second, and then an even smaller segment is corporate bond issuance.