Asian Money Market Rates Rise as Recession May Slow Lending

By David Yong and Candice Zachariahs

Nov. 26 (Bloomberg) -- Funding costs in Asia’s biggest financial markets increased as concerns about a deepening global recession overshadowed U.S. efforts to revive consumer credit, prompting banks to slow lending.

Tokyo’s three-month interbank lending rate rose a 13th day to 0.858 percent, the highest this month. Singapore’s three-month U.S. dollar rate, or Sibor, rose a second day, adding 1.2 basis points to 2.205 percent. Hong Kong’s rate, Hibor, jumped by the most in more than a week, adding 4.6 basis points to 1.95 percent.

“The situation regarding the health of global banks remains doubtful,” said Hiroaki Takahashi, an economist in Tokyo at Japan Center for International Finance. “With the global recession, consumers in South Korea and Japan will also find it difficult to borrow from banks, given that business conditions could worsen.”

Banks are reluctant to lend to companies as earnings slump after Japan, Europe and the U.S. entered their first simultaneous recessions since World War II. Toyota Motor Corp.’s debt rating was cut by Fitch Ratings, the first such downgrade in 10 years, as the U.S. auto slump damps earnings at the carmaker. Banks, brokerages and funds are cutting jobs amid almost $1 trillion of writedowns and credit losses since the start of 2007.

The three-month London interbank offered rate, or Libor as the global benchmark borrowing cost is known, rose this week even as the Federal Reserve committed $800 billion to unfreeze credit for homebuyers, consumers and small businesses and rescued Citigroup Inc. by guaranteeing $306 billion of its troubled assets and toxic debt.

The Libor-OIS spread, a gauge of cash scarcity among banks, widened three basis points to 173 basis points.

Credit markets, which began seizing up after BNP Paribas SA halted withdrawals on three funds in August 2007, froze after the bankruptcy of Lehman Brothers Holdings Inc. on Sept. 15, spurring governments and central banks around the world to bail out financial institutions and pump cash into money markets.

Hong Kong

The U.S. economy, the world’s largest, shrank more than estimated in the third quarter as consumer spending plunged by the most in almost three decades, the Commerce Department said yesterday.

Interbank lending rates for all maturities from overnight to 12 months jumped in Hong Kong, while costs rose on overnight to nine-month money in Singapore, today’s fixings showed. South Korean banks are still paying close to a record rate to swap won for dollars.

The Hong Kong Monetary Authority hasn’t injected cash into money markets this week, after pumping in HK$32.3 billion ($4.16 billion) last week, as the local dollar moved away from the stronger end of its trading band.

“With the exchange rate at what it is now, there is no more need for further liquidity injections,” said Dariusz Kowalczyk, chief investment strategist at CFC Seymour Ltd. in Hong Kong. “There’s no more pressure on interest rates to come down on that.”

Australian Banks

Australian funding costs declined for the first day in seven. The difference between the rate Australian banks charge each other for three-month loans and the overnight swap rate, a measure of funding scarcity, fell six basis points to 50 basis points at 10:40 a.m. in Sydney, retreating from yesterday’s three-week high. The measure averaged 11 basis points in the five years to July 1, 2007.

The Reserve Bank of Australia pumped A$1.49 billion ($970 million) into the financial system today after estimating the shortfall would be A$2.4 billion. Banks yesterday increased deposits held at the RBA by A$828 million to A$4.2 billion, the central bank said today on its Web site.

The rate Australian banks charge each other for three-month loans increased by less than one basis point to 4.48 percent.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net