By Paul J Davies and Henny Sender in Hong Kong
Asian companies have been far too reliant on capital from developed countries and particularly on US dollar funding from European banks, according to a number of senior policymakers and executives at the Asia Financial Forum.
As the financial crisis has taken a further turn for the worse, forcing European banks to pull back on operations outside their domestic markets, the impact is being felt in Asia.
The problems are particularly acute in the areas of trade finance and syndicated lending. Here continental European banks have been particularly active and in countries, such as Australia, where foreign banks account for a large slice of total lending.
The pullback, in turn, is leading to calls for the region to depend more on its own institutions, capital markets and currencies, rather than relying on the west. The result is likely to accelerate the use of the renminbi in intra-Asian trade and increase the profile of Chinese banks in Asian markets.
Takehiko Nakao, Japan?s vice-minister of finance for global affairs, said the region and especially China and Japan should promote more strongly the use of their currencies for Asian financial market liquidity.
?Asia has been too dependent on liquidity of the dollar and euro,? he said, adding that India and South Korea in particular have already suffered from the decline in liquidity in these currencies.
For example, Jet Airways, the Indian airline, and some of the country?s steelmakers have seen their cost of capital, particularly for dollar credit, rise dramatically since last autumn.
?We are not saying depart from the dollar [as the reserve currency] but we should use more the regional currencies for trade and investment, particularly the renminbi and perhaps the yen,? said Mr Nakao.
Haruhiko Kuroda, president of the Asian Development Bank, said he had seen many European banks withdrawing loans and credit from Asia, leading to local currencies weakening and
markets falling. ?Companies are finding their longer-term financing costs are higher,? he said.
Douglas Flint, chairman of HSBC, added that regulatory changes were having a negative effect on banks? ability to finance trade.
?The knock-on of the European crisis is that a lot of European money is going back home to deal with the crisis there,? he said. ?One big problem of the regulatory reforms [going through at the same time] is that they seem to be penalising trade financing through higher capital charges.?
Japan has resisted the internationalisation of the yen but the renminbi is being adopted by more of China?s trading partners.
Anthony Nightingale, managing director of Hong Kong-based conglomerate Jardine Matheson, said its elevator operations were switching orders in China from dollars to renminbi.
? The Financial Times Limited 2012