What drives the behavior of banks to take risks and exposure on lending to public-private partnership (PPP) infrastructure projects in developing Asia? This chapter gives a broader perspective on bank lending for infrastructure PPPs by examining the potential for bank loan syndication using project finance. A bank's gearing ratio intuitively captures the role of equity in achieving financial closure and heterogeneous risk factors across macroeconomic and project-related considerations. But syndicated bank lending provides a different perspective on the role of banks in project finance by focusing on the debt component. This chapter empirically examines the channels by which the degree of bank debt concentration and the likelihood of syndicated lending are underpinned by different factors, particularly the governance functions played by banks on loan syndicate transactions.
The main findings suggest that loan syndication in developing Asia is significantly driven by the rule of law, based on our analysis of seven countries in the region that were chosen for their data availability: India, Indonesia, Malaysia, the Philippines, the Republic of Korea, Thailand, and Viet Nam. Bank lenders to PPP infrastructure projects in these countries are more likely to form a more concentrated syndicate when banks can rely on the efficiency of courts and other institutional remedies to protect and enforce contract arrangements. Moreover, the use of project finance in PPP infrastructure projects in the region may prove to have a beneficial effect on mitigating information asymmetry problems.