Bond Market Development in Emerging Asian Economies

The crash of stock markets and the credit crunching
by the banking sector during the 1997 Asian Financial
Crisis have been the catalyst for bond market
development in many crisis-affected developing Asian
countries. Asian governments started to issue more
bonds to finance economic recovery and restructuring
of banks and firms. Corporate sector relied on
corporate bond issuance as the only safety valve to
overcome business losses, liquidity problems and
financing of strategic investment projects,
when access to banks credit line and equity market
were limited. Moreover, the crisis has highlighted
the problems of maturity and currency mismatches.
Sovereign and corporate borrowers that depended on
external debt financing before the crisis have found
themselves in trouble because exchange rate
depreciation has increased their debt burdens.
Issuance of bonds denominated in domestic currency
will thus help to overcome this exchange rate
risk. Banks started to issue long-term bonds
(liability in their balance sheet) to match with
their long-term asset (bank loans granted) and thus
overcome the maturity mismatch between short-term
deposits and long-term bank loans.

Autorentext

Mr. Tee Peck LingLecturerFaculty of Accountancy and ManagementUniversiti Tunku Abdul RahmanQualifications: MBA Finance (UM), B.Sc. Accounting & Finance (LSE)Subjects taught: Multinational Finance, Financial Management,Risk Management, Management AccountingAreas of Research: Capital Structure, Stock Pricing Models,Foreign Ownership

Klappentext

The crash of stock markets and the credit crunchingby the banking sector during the 1997 Asian FinancialCrisis have been the catalyst for bond marketdevelopment in many crisis-affected developing Asiancountries. Asian governments started to issue morebonds to finance economic recovery and restructuringof banks and firms. Corporate sector relied oncorporate bond issuance as the only safety valve toovercome business losses, liquidity problems andfinancing of strategic investment projects,when access to banks' credit line and equity marketwere limited. Moreover, the crisis has highlightedthe problems of maturity and currency mismatches.Sovereign and corporate borrowers that depended onexternal debt financing before the crisis have foundthemselves in trouble because exchange ratedepreciation has increased their debt burdens.Issuance of bonds denominated in domestic currencywill thus help to overcome this exchange raterisk. Banks started to issue long-term bonds(liability in their balance sheet) to match withtheir long-term asset (bank loans granted) and thusovercome the maturity mismatch between short-termdeposits and long-term bank loans.