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SINGAPORE: Dollar funding remains tight in Asia, despite the recent coordinated interest rate cuts by major central banks around the world.
Market watchers said interbank lending sentiment has remained cautious as concerns over the credit crunch continue.
Meanwhile, key central banks announced on Monday another key effort to free up frozen lending - offering commercial banks unlimited dollars at fixed rates.
Emmanuel Ng, vice president, Treasury Research & Strategy, OCBC Bank, said: "The basic problem is the fear or to put it in a market terminology, the counter-party risk. Very simply, you don't know which names are going to be next to be re-capitalised.
"I think (the) real issue right now is to get the wheels turning in the financial industry itself."
For example, in Singapore over the last month, the three-month Interbank Offered Rate, or SIBOR, peaked at 2.22 per cent in late September. But it has since come down to 1.5 per cent.
Despite this, interbank lending here remains tight, with banks not willing to deal beyond the short term. Many remain wary of the increased risk of loan defaults, as more banks turn insolvent.
Market watchers said the recent moves by central banks to ease monetary policy have helped interbank lending rates come off their highs. But they added that more needs to be done before liquidity can start to flow in the banking system once again.
And that includes providing a guarantee on inter-bank transactions.
Song Seng Wun, regional economist, CIMB-GK Research, said: "Governments essentially have to work to ensure that confidence is returned. It is gradually returning.
"But I think the fact still remains that when you are in an environment where increasingly it looks like we are seeing a synchronised global slowdown in growth over the next 15 months or so, and there are companies that will fail or will go under, banks may prefer still to be risk adverse."
Still, investors may be starting to see a glimmer of hope. Signs that key central banks are prepared to pump in billions of dollars to get banks lending again are giving a boost to global financial markets on Monday. - CNA/vm
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