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Speaker 1: Hello, and welcome to The Credit Edge, a weekly markets podcast.

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Speaker 1: My name is James Crombie. I'm a senior editor at Bloomberg.

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Speaker 1: Today's guests are Silas Brown, who reports on private credit

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Speaker 1: for Bloomberg News in London. We're delighted to have you

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Speaker 1: on the show.

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Speaker 2: I'm delighted to be here. Thank you.

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Speaker 1: We're also very pleased to welcome Rena Quark, who covers

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Speaker 1: back banks for Bloomberg Intelligence based in Singapore.

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Speaker 3: Hi, James, thanks for having me today.

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Speaker 1: We'll be coming back to Rena shortly. There's lots of

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Speaker 1: exciting stuff going on in the banking sector right now,

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Speaker 1: so do stay with us. But first, Silas Brown with

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Speaker 1: Bloomberg News, you've been digging deep into private credit. That's

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Speaker 1: all we seem to be hearing about right now. The

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Speaker 1: deals are getting bigger. A five billion dollar private deal

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Speaker 1: is not out of the question. All the big funds

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Speaker 1: are involved, KKR, Blackstone, black Rock Alliance, Carlyle and I

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Speaker 1: get it from a borrower perspective. Rates have moved so much,

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Speaker 1: markets are so volatile. For some companies, it's the only option.

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Speaker 1: But from an investor standpoint, this made a lot of

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Speaker 1: sense A few years ago. I think when returns were

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Speaker 1: very hard to get, yields on a lot of bonds

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Speaker 1: were negative. But now you can get more than five

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Speaker 1: percent on a high quality US corporate bond, nine percent

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Speaker 1: for junk bonds. Why do you have to sacrifice liquidity

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Speaker 1: and transparency for so little extra return. Let's start with

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Speaker 1: a big question, why is private credit so hot right now?

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Speaker 2: Well? I think I mean firstly that I think what

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Speaker 2: you said about private credit kind of losing its sheen

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Speaker 2: is a very I think important question to be asking

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Speaker 2: the funds, which I have been asking, I think in

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Speaker 2: terms of its hotness. Look, I think a lot of

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Speaker 2: people in the industry see this moment that they're in

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Speaker 2: now as quite comparable to a moment that private equity

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Speaker 2: saw a few decades ago, and they expect some kind

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Speaker 2: of explosion or a kind of persistent explosion in the

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Speaker 2: asset class. And so for those that are incumbent that

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Speaker 2: had kind of seen this early, they're really pushing out

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Speaker 2: and trying to build bigger and bigger funds. And then

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Speaker 2: those that maybe were kind of caught flat footed by

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Speaker 2: the rise of private credit are scrambling to create their

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Speaker 2: own strategies or versions of versions of these funds. In

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Speaker 2: terms of, you know, why investors are interested in the

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Speaker 2: asset class, I think you make a very good point. Essentially,

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Speaker 2: the pitch for you know, the pitch that fund managers

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Speaker 2: would say to investors before was hey, you know, you

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Speaker 2: really can't find yield anywhere, so come into our liquid

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Speaker 2: and relatively opaque asset class and you might find, you know,

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Speaker 2: a kind of comparable spread. Now I think it's different,

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Speaker 2: but I think there's a few a few ways. In Firstly,

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Speaker 2: the market has really matured and they do get access

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Speaker 2: to very big deals and they are you know, very

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Speaker 2: clearly a you know, a competitive alternative to traditional forms

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Speaker 2: of leverage, and so I think that helps. Secondly, I

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Speaker 2: mean it's not just obviously the investment grades market has

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Speaker 2: gone up in yields, but private credit has also gone

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Speaker 2: up in yields, and now direct lenders can kind of

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Speaker 2: quite comfortably get between ten to twelve percent, which is,

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Speaker 2: you know, at least sort of four percent higher than

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Speaker 2: they could have got a few years ago. And so

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Speaker 2: I think they'll be burnishing those credentials as well. And

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Speaker 2: it's floating rate, right, it's floating rate, so they never

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Speaker 2: tire from telling me and bragging that their instrument is

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Speaker 2: actually quite by chance of floating rate instrument and therefore

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Speaker 2: is arewhat insulated from the kind of sudden immediate rate

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Speaker 2: risers that we saw last year in this year.

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Speaker 1: But to get that sort of return, you have to

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Speaker 1: lock up your money for quite a long time. And

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Speaker 1: why would investors do that? And how long are we

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Speaker 1: talking about?

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Speaker 2: Okay, so I mean it's as much as ten years,

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Speaker 2: So it is a very very long time. And I

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Speaker 2: think for some institutions that really doesn't matter. For others

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Speaker 2: it does. There are some kind of brain boxes in

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Speaker 2: the market that are trying to come up with different,

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Speaker 2: different sort of fund structures, more kind of evergreen style

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Speaker 2: fund structures which allow a degree of liquidity for institutions.

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Speaker 2: And there's also I don't know if you want to

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Speaker 2: kind of delve into this, delve into this rabbit hole,

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Speaker 2: but I mean the you know, there's also a big

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Speaker 2: push to get retail investors on board, and those structures

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Speaker 2: also don't have the lock isn't as bolted in those

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Speaker 2: in those structures as the close ended.

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Speaker 1: Funds retail by which you mean my mother, the man

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Speaker 1: on the street. I mean, what are we talking about I.

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Speaker 2: Think retail is that's a very good clarify clarification. It depends, actually,

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Speaker 2: I mean, but by and large it is actually just

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Speaker 2: you know, rich people. There are some structures which allow

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Speaker 2: kind of you know, people who are less wealthy to

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Speaker 2: access but I think the the the emphasis on inverted

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Speaker 2: commas retail investors is an emphasis basically on wealthy individuals.

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Speaker 2: I think that I think that's fair to say of

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Speaker 2: high net worth kind of high sort of the if

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Speaker 2: there was a tiering system, I would say that they

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Speaker 2: were interested in the tier below high net worth kind

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Speaker 2: of mass affluent people with disposable income, but you know,

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Speaker 2: with quite a high degree of assets, you know, in

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Speaker 2: relative terms.

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Speaker 1: So the deals we're seeing right now, I mean, how

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Speaker 1: big are they, what are they for? And why are

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Speaker 1: they going private?

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Speaker 2: Okay, So I mean I think the biggest deals still

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Speaker 2: emanate from the US. There are a few kind of

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Speaker 2: good examples of you know, multi billion dollar transactions coming

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Speaker 2: from from the UK and Europe, but by and large,

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Speaker 2: the real action is still occurring in the US. They're

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Speaker 2: normally for private equity backed businesses, and I think that

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Speaker 2: should be emphasized because it's a statement of fact. That

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Speaker 2: is quite often glossed over by by direct lenders. I think,

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Speaker 2: you know, it's just it's fair that the majority of flow,

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Speaker 2: particularly the large cap flow, comes from private equity deal making.

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Speaker 2: And you know they're normally defensive, defensive ish sectors like healthcare, software,

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Speaker 2: these kind of non cyclical businesses. And yeah, I mean,

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Speaker 2: I think the level of large cap lending is growing

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Speaker 2: just as the just as the market is growing as well.

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Speaker 1: But the scale would suggest that these are companies that

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Speaker 1: you know, they're not struggling, they're not distressed, they could

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Speaker 1: have alternatives in other markets. Why would they go the

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Speaker 1: private route?

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Speaker 2: Well, I mean because of all of the quirks that

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Speaker 2: you can get in the private credit market. I think

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Speaker 2: a lot of the large cat deals come because you

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Speaker 2: get okay, so you get the famous things that you

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Speaker 2: can get in private credit that you don't get in

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Speaker 2: say the high yield or leverage loan market. Is you

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Speaker 2: don't first, you don't need a rating. There's a kind

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Speaker 2: of speed of execution and certainty of execution that is

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Speaker 2: particularly prescient now, just as the credit markets have tightened

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Speaker 2: and the banks have got a bit more nervous about

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Speaker 2: underwriting new LBOs, so that's very very helpful. Secondly, it's

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Speaker 2: more of a kind of relationship lending focus. If I'm

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Speaker 2: a business that's trying to grow, I'm pursuing some very

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Speaker 2: well used term in direct lending, a kind of buy

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Speaker 2: and build strategy where you're kind of acquiring other companies

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Speaker 2: to kind of build into a bigger business. You can

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Speaker 2: get a syndicate of lenders with say, you know, say

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Speaker 2: like Areas or Blackstone or some of the some of

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Speaker 2: the large heavyweight heavyweight lenders, and every time you need

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Speaker 2: a new you need financing for a new acquisition, you

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Speaker 2: can kind of tap tap your kind of syndicate of

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Speaker 2: relationship lenders. And I think it's very effective and very

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Speaker 2: useful for private equity firms rather than trying to tap

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Speaker 2: the high yields and leverage loan market, in which you know,

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Speaker 2: certainly in the US it's quite hard to do under

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Speaker 2: five hundred million dollars. In Europe it's slightly less, but

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Speaker 2: I mean still you have to kind of issue a

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Speaker 2: considerable amount to kind of guarantee that the liquidity that

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Speaker 2: those investors like. And so I think I think it's

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Speaker 2: a persuasive pitch, particularly for a lot of private equity

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Speaker 2: firms that have regular debt needs and kind of like

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Speaker 2: I think, like the relationship aspect of the market.

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Speaker 1: And just to be clear, so what we're talking about

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Speaker 1: when we say private credit, that's just a borrower a

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Speaker 1: company going to a one institution, is it? And privately

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Speaker 1: go as I would go into the bank and get

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Speaker 1: a mortgage that sort of thing.

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Speaker 2: Well, I think private credit is a bit of a

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Speaker 2: smalltgage board of different of different asset classes, and so

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Speaker 2: private credit can be anything from distressed special situations, very

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Speaker 2: kind of funky debt financing. Two more mainstream direct lending,

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Speaker 2: which is I think what most of the columns are about.

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Speaker 2: I mean the most of them are about like an

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Speaker 2: you know, aries, senior lending unitrasche lending funds, and in

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Speaker 2: those instances they are they can be bilateral. A lot

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Speaker 2: of the lower mid market is bilateral. These large cap

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Speaker 2: deals can be syndicates of up to twenty lenders nowadays,

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Speaker 2: and particularly at the moment I think on the on

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Speaker 2: the number of lenders point, I think private equity firms

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Speaker 2: and businesses having been somewhat spooked last year by lenders

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Speaker 2: tapping out or not wanting to commit more debts have

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Speaker 2: tried to extend the pool of lenders that they have

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Speaker 2: a relationship with in order to avoid a situation where

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Speaker 2: they need financing for an acquisition, and hey, presto, the

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Speaker 2: lender says, oh, I'm actually too exposed to your credit already.

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Speaker 1: Okay, so all this lending in the shadows, I'm going

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Speaker 1: to have to ask, you know, there's no transparency, no visibility.

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Speaker 1: We can't see where well how this stuff is trading.

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Speaker 1: Aren't we just setting ourselves up for a big fall here?

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Speaker 2: This is the real bugbear of the market transparency. I mean,

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Speaker 2: I think firstly, it's fair to the industry to say

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Speaker 2: there's quite a lot of transparency. For the investors in

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Speaker 2: these funds. They see the deals and they you know,

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Speaker 2: they have a very constant relationship with the with the funds,

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Speaker 2: and likewise the fund managers have a you know, I

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Speaker 2: think they would argue a closer relationship to the borrower

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Speaker 2: than you would get in the in the in the

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Speaker 2: high old leverage loan markets. But for us kind of

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Speaker 2: layman style spectators, as I find myself, it is frustrating

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Speaker 2: that there's a degree of secrecy to it. I think

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Speaker 2: in terms of I guess I guess the kind of

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Speaker 2: the what's beneath, what's hidden beneath your question about the

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Speaker 2: hidden nature of the market is about regulation and about

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Speaker 2: kind of does does the markets? Do the markets need

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Speaker 2: to know more about this very growing asset class, And

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Speaker 2: I think from what I can tell, you know, there's

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Speaker 2: a degree of at least interest among regulators to kind

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Speaker 2: of look at the asset class and learn more about it.

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Speaker 2: Whether or not that comes with any kind of tangible

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Speaker 2: results from a regulatory perspect I mean, is yet to

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Speaker 2: be seen. But I do think if they kind of

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Speaker 2: pursue this, as we said that earlier, pursue this kind

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Speaker 2: of targeting of of kind of wealthy people to get

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Speaker 2: into the asset class, I mean, that may well prompt more.

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Speaker 1: I'm more concerned though, about the level of distress in

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Speaker 1: this market, you know, given that we're seeing that in

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Speaker 1: the public markets. You know, we've seen a big increase

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Speaker 1: in bankruptcies in the US, We've seen a lot more

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Speaker 1: default so we're seeing a lot more stress in the

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Speaker 1: system as rates have increased dramatically, and also the economy slows,

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Speaker 1: so companies are struggling. Surely that's the same, if not

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Speaker 1: worse in private credit.

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Speaker 2: Well, this is one of the joys about covering this

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Speaker 2: market is that you can kind of, I think quite

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Speaker 2: fairly create sort of bull and bear cases for each

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Speaker 2: each each theme thrown your way. I would say the

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Speaker 2: strong case for the market in terms of distress and

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Speaker 2: restructuring is, as we mentioned earlier, there are fewer lenders

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Speaker 2: involved in these deals that have you know, regular contact

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Speaker 2: with the borrowers and they're all they're pursuing the same interest,

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Speaker 2: which is effectively the preservation of their capital. I think

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Speaker 2: where you get more kind of combative relationships between lenders

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Speaker 2: and sponsors and lenders and lenders in the public markets

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Speaker 2: is when you get investors there that are kind of

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Speaker 2: pursuing their own self interest at you know, at the

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Speaker 2: expense of at the expense of others. There's a degree

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Speaker 2: of protection for the private credit market in that. However, obviously,

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Speaker 2: if there is distress in the market, you can't trade

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Speaker 2: out of these positions with any degree of frequency that

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Speaker 2: you could that you could do in other markets. So

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Speaker 2: I think if you do find yourself with a number

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Speaker 2: of distressed assets, that is a challenge, and it's you know,

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Speaker 2: you know, it's why a lot of these firms have

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Speaker 2: been hiring restructuring professionals because they realize that they basically

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Speaker 2: have to do this in house. So I think it's

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Speaker 2: a mixed picture. We haven't seen a kind of wave

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Speaker 2: of distress yet. Again, as you have skillfully pointed out

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Speaker 2: that the market is quite hidden, we are asking the

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Speaker 2: questions on an almost daily basis to make sure we're

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Speaker 2: on top of this. At the moment, we haven't. Our

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Speaker 2: reporting doesn't suggest that there's a wave of restructuring going

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Speaker 2: on at the moment. But obviously we are in the

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Speaker 2: early stages of potential economic slowdown, and I think the

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Speaker 2: distress that would occur may kind of occur later down

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Speaker 2: the line.

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Speaker 1: And if there is a default, how do we even know,

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Speaker 1: Given that you know the lender and the borrower, they're

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Speaker 1: so aligned, you know, you can just extend, you can amend,

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Speaker 1: you can do all sorts of things to prevent any

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Speaker 1: event of default.

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Speaker 2: Yes, but I mean to look on that kind of positively.

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Speaker 2: You could argue that that's probably that may well present

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Speaker 2: a better outcome for all in that you can kind

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Speaker 2: of be a bit more ad hoc with you can

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Speaker 2: relax terms, you can take some of the interest into

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Speaker 2: some form of pick note or or you know, you

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Speaker 2: can you can be a bit more flexible with the

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Speaker 2: borrower in order to kind of to promote the longevity

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Speaker 2: of the business. But you're right, I mean they often say,

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Speaker 2: look at our low default rate. It's been that really

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Speaker 2: doesn't show the full picture, particularly when the credit terms

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Speaker 2: have eroded to such an extent that it's very hard

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Speaker 2: to trigger in any market.

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Speaker 1: And as we've seen in the US, this often sustains

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Speaker 1: a whole wave of what we've called zombie companies that

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Speaker 1: ms and create havoc throughout the system. That we're seeing

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Speaker 1: those starting to die in the US. But before we

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Speaker 1: talk to Rena Bloomberg Bloomberg Intelligence, what's the next big

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Speaker 1: thing to watch? Silas, what do we expect? How how

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Speaker 1: does this market go? Where does it go from here?

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Speaker 2: Okay, so I think the main things to watch are

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Speaker 2: I mean that where Bloomberg is interested in the market

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Speaker 2: is where the market intersects with traditional forms of leverage finance.

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Speaker 2: So it's private credit versus the banks in terms of underwriting.

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Speaker 2: It's that kind of large scale lending and the big

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Speaker 2: beasts of the market and how do they how do

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Speaker 2: they how do they react. I think distress is an

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Speaker 2: interesting area which we are keeping keeping on top of.

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Speaker 2: I think the pursuit of larger and larger deals is

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Speaker 2: very interesting new entrants to the market. We recently reported

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Speaker 2: that soft Bank was at least flirting with the prospect

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Speaker 2: of becoming becoming a lender, kind of effectively a private lender.

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Speaker 2: And then you know, you hear, you hear more and

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Speaker 2: more of these larger institutions that are kind of trying

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Speaker 2: to gain footholds in the market, including banks and the

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Speaker 2: bank's asset management's division. So we're also keeping on track

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Speaker 2: of that. I do think regulation is something that that

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Speaker 2: at least the market is is somewhat talking about. I

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Speaker 2: don't know what would prompt regulation, but I mean that's

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Speaker 2: something that we're that we're keeping in keeping keeping in

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Speaker 2: touch with. And then I think also structural innovations, I

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Speaker 2: mean trying to you know, when credit markets have got tight,

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Speaker 2: it has often prompted private credit funds and to their

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Speaker 2: credit banks as well to create forms of funky flexible financing,

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Speaker 2: and so for the real die hard supporters of the

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Speaker 2: credit markets, I think that's what we're trying to kind

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Speaker 2: of offer up in terms of reporting.

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Speaker 1: So it's a market that's here to stay, its proturing.

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Speaker 1: It's sort of coming of age moment right now.

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Speaker 2: You think, I think so, But I mean I dread

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Speaker 2: to think if it doesn't come of age, then I'll

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Speaker 2: be held to this, held to the standard. But I

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Speaker 2: don't see any reason why the market won't continue to grow,

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Speaker 2: just as other more mature private markets such as private

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Speaker 2: equity or even less mature markets are growing. I mean,

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Speaker 2: I think it's part of a wave towards towards private

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Speaker 2: markets that is beyond private credit itself.

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Speaker 1: Great stuff. Silas Brown from Bloomberg News, thank you so

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Speaker 1: much for joining us. Thank you read all of sciences

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Speaker 1: scoops on the Bloomberg terminal and of course at Bloomberg

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Speaker 1: dot com. Moving on to another big topic. As I

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Speaker 1: mentioned earlier, we're very fortunate to have with us Rena Quark,

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Speaker 1: who looks at banks for Bloomberg Intelligence. I know you

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Speaker 1: have a lot to say about South Korea arena, but

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Speaker 1: before we get to that, you cover so much more,

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Speaker 1: and I just wanted to ask you know, you have

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Speaker 1: a broad view of the Asia banking sector in big,

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Speaker 1: big picture terms. Banks have had a very rough few

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Speaker 1: months credit Swiss and a bunch of smaller US banks

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Speaker 1: went down. How did that affect Asian financial institutions arena

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Speaker 1: and and what's the fallout? Is everything back to normal

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Speaker 1: now in shames?

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Speaker 3: Now if we take a look at the Asian financials,

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Speaker 3: most of their banks are covering our fans anger and

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Speaker 3: for Soft Korea, most of their dollar boards have actually

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Speaker 3: recovered our stay pre our state pre CREDITSOP levels. And

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Speaker 3: I think the reason why is that you know, a

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Speaker 3: lot of the major lenders that we cover their credit

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Speaker 3: fundamentalge we mean uc zillan, uh least for the arts

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Speaker 3: and banks you know in this region, we see relatively

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Speaker 3: healthy equally profile as e quality remains resilient, and most

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Speaker 3: of the major lenders year have ample capital reiss to

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Speaker 3: question the credit losses they are potentially going to self

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Speaker 3: face in their books. So we are mostly quite comfortable

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Speaker 3: with the lenders in this region.

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Speaker 1: Okay, great, so, but you did sort of hone in

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Speaker 1: on South Korea. I'm interested in your view. What's the

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Speaker 1: outlook there. It's a big economy, it's an important economy.

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Speaker 1: What's the outlook for South Korea's financial sector this year?

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Speaker 3: We actually believe that the resilience of South CAREA financial

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Speaker 3: factor this year could be undermined by the witness and

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Speaker 3: some of the non bank financial institutions due to the

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Speaker 3: diffault years related to their large presd project financing exposures

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Speaker 3: as far as increasingly clearly risk amid their macro antentities

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Speaker 3: and the elevated industry.

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Speaker 1: So why why does South Korea particularly suffer from that?

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Speaker 1: Is there something unique to South Carea's economy that's different

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Speaker 1: to other Asian economies.

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Speaker 3: Yes, I think if we look across you know, the

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Speaker 3: more city developed markets and insurance self career economy is

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Speaker 3: uh facing multiple heatments. One is the elevated household that

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Speaker 3: we see in the economy. The second one, which I

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Speaker 3: pointed out earlier as actually the rising fears about their

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Speaker 3: large variously project financing exposures. They are assisted in some

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Speaker 3: of their non bank executions where they actually finance more

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Speaker 3: of the riskier kind of projects are built of a

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Speaker 3: smaller quantum. And I think the other actually heat wains

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Speaker 3: that we see in soft career economy is that the

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Speaker 3: slow and growth is going to occurrate the economy as well.

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Speaker 3: The stock career economy is facing multiple heatments. This year,

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Speaker 3: and that could actually make the operating environment for the

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Speaker 3: banks UH in the country a bit more challenging.

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Speaker 1: Which banks are we talking about?

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Speaker 3: Yeah, so we are pretty comfortable with most of the

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Speaker 3: big four self careeran bins, but I think one of

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Speaker 3: the to watch out for, at least for a stuff

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Speaker 3: current financial sector. As you know, we mentioned about the

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Speaker 3: mortgages the elevated household debts. Still, in terms of household

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Speaker 3: debt levels, we think that the mortgages and the credit

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Speaker 3: card for this year could be manageable for most of

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Speaker 3: the banks. As you know, the income as well as

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Speaker 3: employment conditions remain fairly resilient despite the right ancious rates

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Speaker 3: growth bears. But the non bank financial institution project financing

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Speaker 3: exposures could be a bigger area of risk. And like

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Speaker 3: I mentioned, it tend to be non residential, riskier asset

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Speaker 3: and smaller quantum. And this is despite the government managers

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Speaker 3: to avoid a heart lending and the property sector.

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Speaker 1: So on the consumer side, we expect them to defilter

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Speaker 1: on their mortgages, do we now?

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Speaker 3: I think in who's some mortgages DeFord they look manageable,

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Speaker 3: like because they know the employment still remains healthy. If

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Speaker 3: our just put things in the context are the unemployment

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Speaker 3: rate and stuff career and off quarter Twain Twain two

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Speaker 3: was about two point nine percent and the average cross

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Speaker 3: national income was about three percent higher versus a year ago.

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Speaker 3: And mortgages risk might also be offset by the microcredential

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Speaker 3: managers to avoid a heart lending of the property markets

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Speaker 3: and most of the major banks and provisions. Now, if

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Speaker 3: we take a look at what we call its truns

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Speaker 3: Day Home deposits, direct risk exposures for the banks could

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Speaker 3: be minored, as well as the courier house appointance of

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Speaker 3: this guarantee up to ninety percent of truns Day Home

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Speaker 3: loans value. But for people who don't buy insurance with

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Speaker 3: Jounsday guarantees, a shop job in the Joints Day price

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Speaker 3: as the risk to watch.

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Speaker 1: Okay, as we've talked about rates of high households have

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Speaker 1: too much debt, but still we don't expect a big

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Speaker 1: wave of defaults through mortgages.

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Speaker 3: Then yes, as as long as the employment conditions remains healthy,

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Speaker 3: we you believe will be the case, I'd likely to

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Speaker 3: see a shop search this year.

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Speaker 1: Okay, So from a credit investors standpoint of someone in

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Speaker 1: the market how does that affect the bonds or you know,

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Speaker 1: is there a lot of debt outstanding at the South

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Speaker 1: Korean banks?

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Speaker 3: Yes, so I think if we take a look at

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Speaker 3: the big four Korean banks, looking at the dollar tier twos,

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Speaker 3: mostly they are at you know, optionally addressed to spread

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Speaker 3: about one hundred and seventy to two hundred and twenty bis,

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Speaker 3: and they trade outside similarly rated singpoon banks, but perhaps

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Speaker 3: not wide enough to reflect the rating guests as well

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Speaker 3: as the creator as like quality projects that we are

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Speaker 3: seeing in the neartom. Now we believe they're a big

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Speaker 3: more Korean banks dollar kier twos could actually tighten versus

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Speaker 3: the local regional banks, but why then versus similarly rated

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Speaker 3: sempor or lenders in the near atom and bond technikers

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Speaker 3: would also less support Korean banks dollar tiertooths given their

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Speaker 3: highest spread mollacility versus the simple bank bonds.

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Speaker 1: Do we expect more issuance?

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Speaker 3: Yes, So if we take a look into the big

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Speaker 3: four financial groups at the whole holding company level, we

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Speaker 3: believe that they're eighty one issuers could for about two

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Speaker 3: billion this year as major and many looks unlikely in

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Speaker 3: the near term amid the macro heat wins and given

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Speaker 3: that most of this Big four financial groups they already

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Speaker 3: have well diversified business now this lenders eighty one issue ones.

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Speaker 3: In the recent years which were mostly in one, there

427
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Speaker 3: were men more chilled over what we call the double

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Speaker 3: leverage ratios rather than raising capital, and the big four

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Speaker 3: financial groups might maintain the leverage ratios well below hundred

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Speaker 3: and thirty percent in the next few years back by

431
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Speaker 3: stay upstream of dividends from their core subsidiaries. Their group

432
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Speaker 3: efforts to strengthen the capital buffers with the targeted group

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Speaker 3: core agrity till one capital racial at twelve to thirteen

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Speaker 3: point five percent. This could lead meet the need for

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Speaker 3: eighty one issuancy.

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Speaker 1: So the AT one market over there continues to be

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00:24:45,240 --> 00:24:48,280
Speaker 1: thriving and not affected by what happened to Credit Swiss.

438
00:24:48,960 --> 00:24:54,680
Speaker 3: I think definitely, you know, post creditors are wipeout, you know, definitely,

439
00:24:54,760 --> 00:24:58,359
Speaker 3: investors are getting more concerned and our will priced in

440
00:24:58,400 --> 00:25:02,040
Speaker 3: the extra risk. Definitely, financing a new AT one will

441
00:25:02,080 --> 00:25:06,240
Speaker 3: be more expensive for issuers going forward, but at least

442
00:25:06,280 --> 00:25:10,480
Speaker 3: for the Big four stuff career banks that remain well capitalized,

443
00:25:10,520 --> 00:25:15,000
Speaker 3: so that actuallymits uh the need for eighty one issue.

444
00:25:14,680 --> 00:25:20,800
Speaker 1: And okay, so you sound pretty optimistic overall arena, but

445
00:25:20,920 --> 00:25:23,320
Speaker 1: you know, it's a credit show. I'm always worried about stuff.

446
00:25:23,359 --> 00:25:25,120
Speaker 1: What are the risks out there?

447
00:25:26,520 --> 00:25:29,600
Speaker 3: So you know, I would say it's a mixed back

448
00:25:29,760 --> 00:25:33,440
Speaker 3: and self career financial sector. In terms of the major banks,

449
00:25:33,480 --> 00:25:35,879
Speaker 3: we are comfortable with them, but you know, what are

450
00:25:35,880 --> 00:25:38,439
Speaker 3: the risks that we see. They are actually sitting in

451
00:25:38,480 --> 00:25:42,000
Speaker 3: the non banks and self career financial sector. And one

452
00:25:42,000 --> 00:25:44,400
Speaker 3: of the risks of highlight is actually the rising liquidity

453
00:25:44,400 --> 00:25:47,879
Speaker 3: erisks that we see for soft current non banks, and

454
00:25:47,920 --> 00:25:51,000
Speaker 3: we actually believe that the liquidity eres could rise at

455
00:25:51,119 --> 00:25:55,880
Speaker 3: current non banks, especially the security companies, credit specialized financial

456
00:25:55,920 --> 00:26:01,400
Speaker 3: companies as well as mutual saving banks a bit the recordheatment. Now,

457
00:26:01,480 --> 00:26:04,280
Speaker 3: if we take a look at third quarter twenty twenty two,

458
00:26:04,560 --> 00:26:07,399
Speaker 3: while the liquidity courage ratio will be read well above

459
00:26:07,400 --> 00:26:10,960
Speaker 3: the regulatory hurdles for most of the non banks, their

460
00:26:11,080 --> 00:26:15,960
Speaker 3: ratios have fallen sharply versus twenty nineteen levels, and particularly

461
00:26:16,200 --> 00:26:20,399
Speaker 3: securities companies as well as credit specialized financial companies, they

462
00:26:20,440 --> 00:26:23,800
Speaker 3: are vulnerable to market tutors given their heavy reliance on

463
00:26:23,920 --> 00:26:27,560
Speaker 3: short term hostal fundings and mutually saving banks. It's the

464
00:26:27,640 --> 00:26:31,160
Speaker 3: non banks by actually face rising risks of deposit outfload

465
00:26:31,200 --> 00:26:33,600
Speaker 3: in second half, and this is due to the lower

466
00:26:33,680 --> 00:26:36,560
Speaker 3: deposit rate different shoals with the major banks and the

467
00:26:36,640 --> 00:26:40,280
Speaker 3: possible flight to quality given concern about their project financing

468
00:26:40,359 --> 00:26:42,719
Speaker 3: exposures if a doubt turn happens.

469
00:26:43,160 --> 00:26:45,280
Speaker 1: So you'll be keeping us updating on those ways as

470
00:26:45,280 --> 00:26:45,680
Speaker 1: they happen.

471
00:26:46,240 --> 00:26:47,359
Speaker 3: Definitely great.

472
00:26:47,359 --> 00:26:50,560
Speaker 1: Thank you so much, Rena Quoka Bloomberg Bloomberg Intelligence. You

473
00:26:50,600 --> 00:26:53,200
Speaker 1: can read all her great analysis on the Bloomberg Terminal.

474
00:26:53,480 --> 00:26:55,000
Speaker 1: Do check it out and hope see you se.

475
00:26:54,880 --> 00:26:55,920
Speaker 2: Rena like water.

476
00:26:55,960 --> 00:26:56,880
Speaker 3: Thanks for having me, Jans.

477
00:26:57,080 --> 00:26:59,720
Speaker 1: Thanks again also to Silas Brown from Bloomberg News. Read

478
00:26:59,720 --> 00:27:02,320
Speaker 1: all his great private credit scoops on the terminal and

479
00:27:02,400 --> 00:27:03,600
Speaker 1: at Bloomberg dot com.

480
00:27:03,600 --> 00:27:04,000
Speaker 2: Thank you.

481
00:27:04,680 --> 00:27:07,000
Speaker 1: I'm James Crombie. It's been a pleasure having you join

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00:27:07,080 --> 00:27:08,960
Speaker 1: us again next week on the Credit Edge