The coronavirus outbreak may reinforce the ongoing relocation of manufacturing supply chains away from China and into the Asean region.
The shift – prompted by the United States-China trade war – is likely to accelerate after the epidemic shut factories and businesses in parts of China, said Maybank Kim Eng.
For now, most of the affected companies are using loans from foreign banks to finance the move out of China, the brokerage firm said in a research report.
But as they build up their local suppliers and markets in the region, they will need to tap local banks for US-dollar funding to hedge their export proceeds.
That will boost domestic lending in Asean countries, especially in Singapore, where banks have the deepest foreign currency funding pools and can finance the new supply chains across the region.
Increasing investments by the multinational companies will also spur the growth of supporting local industries, which will further drive growth in domestic lending.
Many multinational companies, especially automakers and electronics companies, have been forced to source their supplies from other countries to fill the gap left by the temporary closure of businesses in China due to lockdowns that aim to curtail the coronavirus spread.
Japanese automakers such as Toyota and Honda, and South Korean multinational Samsung, have indicated they will speed up their relocation plans.
The shift in supply chains to Asean is evident from the recent surge of foreign bank lending in the region. Meanwhile, foreign bank claims on China have declined.
Singapore, being an offshore financial centre, has benefited from the increase in cross-border lending, given the heavy presence of foreign banks in the Republic.
Foreign bank claims on Singapore – including local claims booked by foreign banks’ offices in the Republic – continue to grow strongly.
Singapore’s Asian Currency Unit loan growth – which captures foreign currency lending for the region – has been surging since 2018.
The surge has been led by the construction and manufacturing sectors.
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