(SINGAPORE) It is far from business as usual for Asia-Pacific's syndicated loan market - notwithstanding last month's mega US$2.4 billion Noble deal.

Volumes are much lower than last year, according to Thomson Reuters LPC.

Its data shows that this year, up to Nov 2, syndicated loan volumes for Asia-Pacific ex-Japan reached US$118 billion with 449 deals. In 2008, there were 811 deals amounting to US$235 billion.

'From April, sentiment has improved quite significantly until now but volumes have not followed,' said Phil Lipton, HSBC head and managing director of syndicated finance, Asia-Pacific.

In fact, the entire nature of the market appears to have been turned on its head. Loan tenors are getting shorter. More of them appear to be denominated in local currencies rather than the US dollar.

And Asian banks - Chinese and Indian, in particular - now dominate the market, following the retreat of many international banks in the aftermath of the financial crisis.

DBS Bank, South-east Asia's largest bank, has also seen its market share surge to 3.1 per cent from 2.5 per cent in 2008 and 1.8 per cent in 2007, according to Thomson Reuters.

Apart from Indian and Chinese entities, DBS, Standard Chartered and Japanese-owned MUFG are the three Asian regional banks included in the top 10 Asia (excluding Japan and Australia) mandated arrangers league table for Jan-Sept 2009.

'DBS has demonstrated its ability to structure deals and distribute for Asian liquidity,' said Boey Yin Chong, DBS managing director, syndicated finance.

DBS was the only Singapore bank among the 10 bookrunners of the Noble deal - which is the largest syndicated loan in Asia ex-Australia so far this year, with 63 banks involved.

The deal was oversubscribed to US$2.5 billion from the initial deal size of US$1.8 billion.

But while Noble is a bright spot for the syndicated loan market, the business itself is getting transformed.

'The nature of the beast has changed from US$ to local currencies-denominated business,' said Anup Kuruvilla, Royal Bank of Scotland (RBS) head of structured and corporate syndicate.

Mr Kuruvilla estimates that China's syndicated loan business is almost 90 per cent in yuan and it's over 80 per cent in rupees for the Indian market. Many local borrowers do not need US dollars as the funding is for domestic use.

'Chinese banks are very active in transactions involving Chinese companies, especially the state-owned enterprises, in Asia-Pacific,' said Ronny Chng, United Overseas Bank (UOB) managing director, debt capital market.

Still, even as Asian multinationals borrow for expansion or acquisitions overseas, regional banks are expected to dominate although the cost of US$ funding has come down.

'International banks have more stringent return requirements today, so it makes it more economical to turn to local banks,' said Mr Kuruvilla.

'Asian banks are relatively less affected by the financial crisis, and are more prepared to look at deals, subject to right pricing and acceptable structure,' said Pat Waranimman, Standard Chartered Bank managing director/ head of syndications, South East Asia.

DBS's Mr Boey pointed out that it has successfully clinched deals from European corporates, not just Asian entities.

He cited where DBS was bookrunner for European borrowers Vitol (US$820 million) and Trafigura (US$700 million).

The financial crisis may be over but banks are still pretty risk-averse and are inclined towards companies in defensive sectors such as telcos, retail and commodities, and high- grade names.

'Real estate (lending) remains patchy,' said Mr Boey.

'As markets recover and Asian growth numbers tick upwards, there has been an increased appetite from banks (both local and global) to lend to good corporate names or companies in growth industries,' said Benjamin Ng, Citi's Asia-Pacific head of capital markets syndicate.

HSBC's Mr Lipton said loan tenors are also now shorter: three years, rather than five years pre-crisis. The Noble loan had three tranches of 1-3 years each.

With the recovery of the global economy, pricing has improved considerably for the borrower though it is still much higher than pre-crisis levels.

Noble is paying 180 basis points for its 1-year tranche, 242.5 basis points for the 2-year, and 295 basis points for the 3-year. This is still much more than the 76.5 basis points for a 3-year refinancing deal in 2007.

Margins had widened as much as 10-fold at the peak of the crisis, said Stanchart's Mr Waranimman.

'Although these have tightened in the last few months in line with the stability of the financial markets, we do not expect these to return to pre-crisis levels for a while as some banks continue to experience high funding costs,' he said.