Alternative capital can help sustain Southeast Asia’s growth momentum

29 August 2024

With an interest rate cut “on the table” at the US Federal Reserve’s next meeting on September 17-18,[1] there may be some respite on the horizon for Southeast Asian businesses struggling to raise capital.

The rapid cycle of US interest rate increases over the past two years has put pressure on several Southeast Asian central banks to hike interest rates to support their currencies and quell inflation.

But with non-performing loans having crept up in several member states of the Association of Southeast Asian Nations (ASEAN),[2] along with ongoing global macroeconomic and geopolitical uncertainty, even if the Fed does start gradually easing, credit conditions are likely to remain tight. Against this backdrop, alternative financing solutions will continue to help bridge the funding gap for the region’s businesses, which are primed and hungry for growth.

Opportunities abound

Southeast Asia’s economies recovered strongly from the Covid-19 pandemic, and have sustained their growth momentum into 2024. Crucially, this growth is driven in large part by strong domestic consumption, underpinned by low unemployment.[3] This means that even if a challenging external environment hinders the nascent recovery in exports, the region looks set to remain a global center of growth.

ASEAN is on track to become the world’s fourth-largest economy by 2030[4] as global supply chains increasingly gravitate towards its member nations.[5] It will also continue moving up the value chain, diversifying from commodities and natural resources to electronics, semiconductors and other high-tech goods.[6] Emblematic of this transition, Malaysia has become the leading exporter of microchips to the US[7] and companies like Samsung and Apple are not only expanding production in Vietnam,[8] but are also building R&D hubs in the country.[9]

This shift will fuel further urbanization and the spread of mass affluence across the bloc, resulting in a consumption boom. By 2030, 70% of the region’s population – which now stands at over 670 million[10] – is expected to have attained middle-class income levels, propelling the consumer market to an estimated USD4 trillion.[11]

Intra-ASEAN trade is forecast to grow by $1.2 trillion over the next decade[12] as demand surges across a variety of consumer-facing sectors, from education and healthcare to electronics and automobiles.[13] Consequently, local businesses will increasingly find opportunities for growth within the region.

There will also be rapid growth in Southeast Asia’s digital economy, which is currently dominated by e-commerce, digital financial services, transport and food delivery platforms, and online travel and media.[14] Digital economy sales in the six largest economies of ASEAN – Indonesia, Thailand, Singapore, Vietnam, Malaysia and the Philippines – reached an estimated USD218 billion in 2023 and is on track to reach USD600 billion by 2030, according to the annual e-Conomy SEA report by Google, Temasek and Bain & Company.[15]

Credit headwinds

A potential impediment to achieving this growth potential is the current reluctance of traditional lenders to serve businesses in the region, even though they appear to benefit from much brighter economic prospects than firms elsewhere.

Even the largest ASEAN corporations are having a hard time securing financing, with syndicated loan volume in the second quarter of 2024 plunging nearly 40% year-on-year to a 10-year low, below levels seen during the peak of the pandemic in 2020.[16] Meanwhile, the region’s SMEs, which have long faced a severe funding gap,[17] may be faring even worse.

In addition to holding back individual firms, a lack of funding could hamper the energy transition in ASEAN, which collectively constitutes the world’s fourth largest consumer of energy, behind China, the US and India.[18] This, in turn, could dampen the region’s export prospects considering that half of the world’s largest companies have made net zero commitments, and will therefore expect their supply chain partners to adopt viable energy transition plans.[19]

Better days ahead?

Fortunately, Southeast Asia could be over the worst of its credit crunch. The International Monetary Fund recently urged Asian central banks to focus on domestic inflation and avoid tying their policy decisions too closely to anticipated moves by the U.S. Federal Reserve.[20]

The high US interest rate has put pressure on the currencies of several ASEAN nations, including the Philippines, Thailand and Indonesia, where central banks opted to hike interest rates in recent months to support their currencies and quell inflation.[21]

As it stands, interest rates across Southeast Asia have risen by less than the five-percentage-point increase in the US to 5.5%. There is a fair degree of divergence across ASEAN, however.[22] Rates only increased two percentage points in Thailand to 2.5%, and 1.25 percentage points in Malaysia to 3%. They are more of an issue in Indonesia, where a 2.75 percentage-points increase has brought the rate to 6.25% and the Philippines, where a cumulative four percentage point hike has brought the rate to 6.5%.

But with inflation in these countries now sitting within target ranges,[23] rates are unlikely to rise further. Local governments are also pressuring their central banks to start easing to boost growth[24] – though it is unclear when and to what extent that might happen.

Even if the Fed decides to cut at its September meeting – setting the stage for rate cuts across ASEAN – the region’s banks may remain wary of extending loans in the face of mounting credit risks and dampened interest earnings amid an uneven global economic outlook.[25]

Bridging the gap

Businesses need financing to pursue the opportunities resulting from Southeast Asia’s near-term growth – the Asian Development Bank forecasts GDP will expand 4.6% in 2024 and 4.7% in 2025 – and long-term rise. With many traditional lenders still on the sidelines, alternative capital from non-bank sources have become an increasingly important means of filling the gap.

One such solution is securities-backed financing from EquitiesFirst, which provides long-term shareholders a convenient, flexible and cost-effective way to use their equities as collateral to access liquidity. Structured as a sale-and-repurchase agreement with no restrictions on the use of proceeds, it allows investors to retain the upside potential of their underlying holdings while pursuing returns from the region’s emerging opportunities.


[1] https://apnews.com/article/inflation-economy-federal-reserve-interest-rates-04d2877f47f3913acc2f992d8ef1581b

[2] https://asia.nikkei.com/Business/Finance/ASEAN-banks-squeezed-between-credit-risks-and-interest-dynamics

[3] https://www.mckinsey.com/featured-insights/future-of-asia/southeast-asia-quarterly-economic-review

[4] https://asean.org/wp-content/uploads/2022/12/investment-report-2023.pdf

[5] https://www.cnbc.com/2024/06/24/southeast-asia-is-the-top-choice-for-firms-diversifying-away-from-china.html

[6] https://asean.org/wp-content/uploads/2023/12/AIR-Special-2023.pdf

[7] https://www.ft.com/content/4e0017e8-fb48-4d48-8410-968e3de687bf

[8] https://www.scmp.com/tech/tech-trends/article/3206362/chinese-supplier-apple-samsung-screens-build-new-factories-vietnam

[9] https://www.cnbc.com/2024/06/24/southeast-asia-is-the-top-choice-for-firms-diversifying-away-from-china.html

[10] https://www.aseanstats.org/wp-content/uploads/2023/12/ASEAN-Key-Figures-2023.pdf

[11] https://www.business.hsbc.com.cn/en-gb/campaigns/belt-and-road/asean-story-3

[12] https://www.bcg.com/publications/2024/jobs-national-security-and-future-of-trade

[13] https://investasean.asean.org/reasons-for-investing/view/671/newsid/741/robust-market.html#_ftn1

[14] https://services.google.com/fh/files/misc/e_conomy_sea_2023_report.pdf

[15] https://www.temasek.com.sg/content/dam/temasek-corporate/news-and-views/resources/reports/google-temasek-bain-e-conomy-sea-2023-report.pdf

[16] https://www.bloomberg.com/professional/insights/data/apac-loans-market-overview-q2-2023/

[17] https://www.adb.org/sites/default/files/publication/774531/financing-smes-credit-guarantee-schemes.pdf

[18] https://www.weforum.org/agenda/2023/05/how-asean-can-seize-its-energy-opportunities/

[19] https://www.weforum.org/agenda/2023/05/how-asean-can-seize-its-energy-opportunities/

[20] https://www.reuters.com/markets/imf-tells-asian-central-banks-not-follow-fed-too-closely-2024-04-18/

[21] https://www.ft.com/content/3a985f06-35b5-4a56-91eb-4595fc71b0ad

[22] https://en.macromicro.me/collections/1773/asean/14970/asean-interest-rate

[23] https://www.mckinsey.com/featured-insights/future-of-asia/southeast-asia-quarterly-economic-review

[24] https://www.reuters.com/markets/asia/thai-central-bank-says-rates-could-change-if-economic-outlook-shifts-2024-05-29

[25] https://asia.nikkei.com/Business/Finance/ASEAN-banks-squeezed-between-credit-risks-and-interest-dynamics

29 August 2024

With an interest rate cut “on the table” at the US Federal Reserve’s next meeting on September 17-18,[1] there may be some respite on the horizon for Southeast Asian businesses struggling to raise capital.

The rapid cycle of US interest rate increases over the past two years has put pressure on several Southeast Asian central banks to hike interest rates to support their currencies and quell inflation.

But with non-performing loans having crept up in several member states of the Association of Southeast Asian Nations (ASEAN),[2] along with ongoing global macroeconomic and geopolitical uncertainty, even if the Fed does start gradually easing, credit conditions are likely to remain tight. Against this backdrop, alternative financing solutions will continue to help bridge the funding gap for the region’s businesses, which are primed and hungry for growth.

Opportunities abound

Southeast Asia’s economies recovered strongly from the Covid-19 pandemic, and have sustained their growth momentum into 2024. Crucially, this growth is driven in large part by strong domestic consumption, underpinned by low unemployment.[3] This means that even if a challenging external environment hinders the nascent recovery in exports, the region looks set to remain a global center of growth.

ASEAN is on track to become the world’s fourth-largest economy by 2030[4] as global supply chains increasingly gravitate towards its member nations.[5] It will also continue moving up the value chain, diversifying from commodities and natural resources to electronics, semiconductors and other high-tech goods.[6] Emblematic of this transition, Malaysia has become the leading exporter of microchips to the US[7] and companies like Samsung and Apple are not only expanding production in Vietnam,[8] but are also building R&D hubs in the country.[9]

This shift will fuel further urbanization and the spread of mass affluence across the bloc, resulting in a consumption boom. By 2030, 70% of the region’s population – which now stands at over 670 million[10] – is expected to have attained middle-class income levels, propelling the consumer market to an estimated USD4 trillion.[11]

Intra-ASEAN trade is forecast to grow by $1.2 trillion over the next decade[12] as demand surges across a variety of consumer-facing sectors, from education and healthcare to electronics and automobiles.[13] Consequently, local businesses will increasingly find opportunities for growth within the region.

There will also be rapid growth in Southeast Asia’s digital economy, which is currently dominated by e-commerce, digital financial services, transport and food delivery platforms, and online travel and media.[14] Digital economy sales in the six largest economies of ASEAN – Indonesia, Thailand, Singapore, Vietnam, Malaysia and the Philippines – reached an estimated USD218 billion in 2023 and is on track to reach USD600 billion by 2030, according to the annual e-Conomy SEA report by Google, Temasek and Bain & Company.[15]

Credit headwinds

A potential impediment to achieving this growth potential is the current reluctance of traditional lenders to serve businesses in the region, even though they appear to benefit from much brighter economic prospects than firms elsewhere.

Even the largest ASEAN corporations are having a hard time securing financing, with syndicated loan volume in the second quarter of 2024 plunging nearly 40% year-on-year to a 10-year low, below levels seen during the peak of the pandemic in 2020.[16] Meanwhile, the region’s SMEs, which have long faced a severe funding gap,[17] may be faring even worse.

In addition to holding back individual firms, a lack of funding could hamper the energy transition in ASEAN, which collectively constitutes the world’s fourth largest consumer of energy, behind China, the US and India.[18] This, in turn, could dampen the region’s export prospects considering that half of the world’s largest companies have made net zero commitments, and will therefore expect their supply chain partners to adopt viable energy transition plans.[19]

Better days ahead?

Fortunately, Southeast Asia could be over the worst of its credit crunch. The International Monetary Fund recently urged Asian central banks to focus on domestic inflation and avoid tying their policy decisions too closely to anticipated moves by the U.S. Federal Reserve.[20]

The high US interest rate has put pressure on the currencies of several ASEAN nations, including the Philippines, Thailand and Indonesia, where central banks opted to hike interest rates in recent months to support their currencies and quell inflation.[21]

As it stands, interest rates across Southeast Asia have risen by less than the five-percentage-point increase in the US to 5.5%. There is a fair degree of divergence across ASEAN, however.[22] Rates only increased two percentage points in Thailand to 2.5%, and 1.25 percentage points in Malaysia to 3%. They are more of an issue in Indonesia, where a 2.75 percentage-points increase has brought the rate to 6.25% and the Philippines, where a cumulative four percentage point hike has brought the rate to 6.5%.

But with inflation in these countries now sitting within target ranges,[23] rates are unlikely to rise further. Local governments are also pressuring their central banks to start easing to boost growth[24] – though it is unclear when and to what extent that might happen.

Even if the Fed decides to cut at its September meeting – setting the stage for rate cuts across ASEAN – the region’s banks may remain wary of extending loans in the face of mounting credit risks and dampened interest earnings amid an uneven global economic outlook.[25]

Bridging the gap

Businesses need financing to pursue the opportunities resulting from Southeast Asia’s near-term growth – the Asian Development Bank forecasts GDP will expand 4.6% in 2024 and 4.7% in 2025 – and long-term rise. With many traditional lenders still on the sidelines, alternative capital from non-bank sources have become an increasingly important means of filling the gap.

One such solution is securities-backed financing from EquitiesFirst, which provides long-term shareholders a convenient, flexible and cost-effective way to use their equities as collateral to access liquidity. Structured as a sale-and-repurchase agreement with no restrictions on the use of proceeds, it allows investors to retain the upside potential of their underlying holdings while pursuing returns from the region’s emerging opportunities.


[1] https://apnews.com/article/inflation-economy-federal-reserve-interest-rates-04d2877f47f3913acc2f992d8ef1581b

[2] https://asia.nikkei.com/Business/Finance/ASEAN-banks-squeezed-between-credit-risks-and-interest-dynamics

[3] https://www.mckinsey.com/featured-insights/future-of-asia/southeast-asia-quarterly-economic-review

[4] https://asean.org/wp-content/uploads/2022/12/investment-report-2023.pdf

[5] https://www.cnbc.com/2024/06/24/southeast-asia-is-the-top-choice-for-firms-diversifying-away-from-china.html

[6] https://asean.org/wp-content/uploads/2023/12/AIR-Special-2023.pdf

[7] https://www.ft.com/content/4e0017e8-fb48-4d48-8410-968e3de687bf

[8] https://www.scmp.com/tech/tech-trends/article/3206362/chinese-supplier-apple-samsung-screens-build-new-factories-vietnam

[9] https://www.cnbc.com/2024/06/24/southeast-asia-is-the-top-choice-for-firms-diversifying-away-from-china.html

[10] https://www.aseanstats.org/wp-content/uploads/2023/12/ASEAN-Key-Figures-2023.pdf

[11] https://www.business.hsbc.com.cn/en-gb/campaigns/belt-and-road/asean-story-3

[12] https://www.bcg.com/publications/2024/jobs-national-security-and-future-of-trade

[13] https://investasean.asean.org/reasons-for-investing/view/671/newsid/741/robust-market.html#_ftn1

[14] https://services.google.com/fh/files/misc/e_conomy_sea_2023_report.pdf

[15] https://www.temasek.com.sg/content/dam/temasek-corporate/news-and-views/resources/reports/google-temasek-bain-e-conomy-sea-2023-report.pdf

[16] https://www.bloomberg.com/professional/insights/data/apac-loans-market-overview-q2-2023/

[17] https://www.adb.org/sites/default/files/publication/774531/financing-smes-credit-guarantee-schemes.pdf

[18] https://www.weforum.org/agenda/2023/05/how-asean-can-seize-its-energy-opportunities/

[19] https://www.weforum.org/agenda/2023/05/how-asean-can-seize-its-energy-opportunities/

[20] https://www.reuters.com/markets/imf-tells-asian-central-banks-not-follow-fed-too-closely-2024-04-18/

[21] https://www.ft.com/content/3a985f06-35b5-4a56-91eb-4595fc71b0ad

[22] https://en.macromicro.me/collections/1773/asean/14970/asean-interest-rate

[23] https://www.mckinsey.com/featured-insights/future-of-asia/southeast-asia-quarterly-economic-review

[24] https://www.reuters.com/markets/asia/thai-central-bank-says-rates-could-change-if-economic-outlook-shifts-2024-05-29

[25] https://asia.nikkei.com/Business/Finance/ASEAN-banks-squeezed-between-credit-risks-and-interest-dynamics