Over 20 years after Asia debt crisis, McKinsey sees signs of a repeat

McKinsey examined the balance sheets of more than 23,000 companies across eleven Asia-Pacific countries, and found firms in most of Asia face ‘significant stress’ in servicing debt obligations.

More than two decades since the Asia debt crisis gripped the region, global consulting firm McKinsey & Co is warning that signs of a rerun are “ominous.” Increased indebtedness, stresses in repaying borrowing, lender vulnerabilities and shadow banking practices are some of the concerns cited by McKinsey in an August report. Whether building pressures are “enough to trigger a new Asia debt crisis remains to be seen” but governments and businesses need to monitor potential causes, authors Joydeep Sengupta and Archana Seshadrinathan wrote.

McKinsey’s warning shot comes as a slowing global economy puts pressure on earnings at Asian companies, and the US-China trade war makes debt investors more risk adverse. Still, fund managers point to improved credit metrics of Asian dollar bond issuers in recent years, and Moody’s Investors Service said last week it expects most Asian economies can offset the domestic impact of the global slowdown through monetary and fiscal policy measures.

McKinsey examined the balance sheets of more than 23,000 companies across eleven Asia-Pacific countries, and found firms in most of Asia face “significant stress” in servicing debt obligations. In countries such as China and India, those pressures have risen since 2007, while falling sharply in the US and UK during the same period, according to McKinsey…