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Business trends

Asian lenders vie for supremacy in project financing

Chinese and Indian rivals poised to knock Japanese megabanks off their perch

Renewable energy projects, such as wind farms, are increasingly becoming recipients of financing. (Photo by Takaki Kashiwabara)

TOKYO -- Asian financial groups continued to dominate infrastructure-heavy project finance last year, with Chinese and Indian banks in position to challenge reigning Japanese rivals.

A total of $229.6 billion was committed to project financing in 2017, a 3% decline from 2016, according to data from Thomson Reuters.

Japan's Mitsubishi UFJ Financial Group topped the project finance rankings for the sixth year in a row, though transaction volume fell 16% to $12.1 billion.

Two other Japanese megabanks featured in the list. Sumitomo Mitsui Financial Group, was third with $9.1 billion, while Mizuho Financial Group was eighth. The three lenders accounted for 12% of all project financing.

However, the focus is moving away from Japan. State Bank of India, the country's biggest government-run bank, became last year's runner-up behind MUFG, having risen from 10th position in 2016.

Chinese lenders have also climbed into the top 10. China Development Bank was in fifth place and Industrial and Commercial Bank of China was No. 7. This is occurring within the context of Beijing's cross-border Belt and Road Initiative. Bank of China also rose up the rankings, reaching No. 14., up from No. 21 in the previous year.

The U.S. is the biggest market receiving the loans, taking in roughly a fifth of the volume. Much of the funds went to large-scale projects, such as solar power generation. Australia and the U.K. were the next biggest recipients, highlighting how Asian banks are increasingly active in non-Asian countries.

Over the past 15 years, there has been a sea change in the lineup of top lenders. Citibank of the U.S. stood above the rest in 2002 and 2004, then European peers like the Royal Bank of Scotland and France's BNP Paribas monopolized the top spots.

The damage from the 2008 global financial crisis knocked the European contingent from the top three in 2010. Taking their place have been Japanese banks, which weathered the shock better than their Western counterparts.

Facing limited demand at home, Japanese lenders pivoted to offshore markets. The three megabanks occupied the top three places in 2014. But banks in emerging Asia are now expected to increase activity due to the sheer number of projects in the region.

The adoption of the Basel III international regulatory framework will also likely fuel a changing of the guard. Under the new rules, banks in developed countries risk capital adequacy ratios shrinking more sharply in proportion with increased lending.

State Bank of India became the second-leading source of project financing in 2017.   © Reuters

"There is a limit to on-balance-sheet financing," said Tomonori Miyagawa, chief manager at Bank of Tokyo-Mitsubishi UFJ's project finance office.

Lenders in emerging markets, on the other hand, are less likely to be affected by the new rules. Because of the smaller impact, those banks will have more leeway to boost project lending.

Bank of Philippine Islands jumped to No. 20. from No. 63, while Korea Development Bank rose to No. 18, having been in 27th spot the previous year. 

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