Asian banks will ‘fill eurozone lending gaps’

Speaking at the Joint Investment Forum last week, Mr Sennitt, who runs the £155.8m Asian Income and £122.4m Asian Income Maximiser funds, said the new capital raising requirements being enforced in Europe may lead to a withdrawal of funds lent to Asian firms.

Mr Sennitt said: “It’s striking how rapidly European banks have moved to lend to Asean [Association of South East Asian Nations] countries, as there are not many companies left to lend to in Europe.

“The problem is that now these banks are coming under pressure and are going to start withdrawing credit from their offshore loan books. The great thing about Asia, however, is that it is remarkably underleveraged. Domestic banks can take up the slack as European banks exit as they are in the opposite situation – they have less competition and better margins.”

When asked about how quickly funding may be withdrawn, Mr Sennitt said it would take longer to close out loan deals than the six months left before the new European capital ratio requirements came into force.

Under Basel III regulation passed by global regulators, European banks must raise the amount of capital they hold to 9 per cent of risk-weighted assets. The European Banking Authority last year said it would take steps to ensure that banks did not delever too quickly and destabilise the wider financial system.

Henderson’s Chris Burvill, manager of the £817.1m Cautious Managed fund, added: “The idea of European capital ratios is to encourage banks to improve their capitalisation. If they were to struggle, then they would have to issue equity quickly.

“It’s more likely that they will have a little bit of leeway from the regulators with regards to the timescale of capital raising.”

Matthew Vaight, manager of the £548.6m M&G Global Emerging Markets fund, called for European regulators to follow the example set by some emerging market regulators and introduce counter-cyclical banking regulations.

This would involve capital raising during periods of strong economic growth to ensure that lending can continue during weaker periods.

“It’s a shame regulators haven’t been strong enough to do this,” he said.