This chapter examined syndicated bank lending in the context of project finance to PPP infrastructure projects in developing Asia. Overall, the evidence indicates that the extent of bank syndication in the seven countries analyzed (India, Indonesia, Malaysia, the Philippines, the Republic of Korea, Thailand, and Viet Nam) is primarily driven by the level of a country's legal risk, as well as the capitalization and liquidity levels of banks. The likelihood that banks will form and participate in a loan syndicate is greatly influenced by monetary policy, a country's risk profile, and bank liquidity, as well as loan-specific characteristics, such as loan-tranche size and loan security.
While the volume and leverage of bank financing on project finance in the seven countries are underpinned by their macroeconomic variables, syndicated bank lending is driven by variables related to institutional quality that affect the governance role of banks in response to a country's legal environment. These findings have a significant policy implication for creating an enabling environment for infrastructure PPPs: attracting private financing for project finance not only depends on policies that support sustained economic growth, but also on the efficiency of the legal system by which banks are given creditor rights, and that project finance contracts are protected and are fully enforced. This supports the recommendation of Vecchi et al. (2017) that strong institutions and a dedicated legal framework are crucial for promoting PPPs.
The empirical findings further suggest that the use of project finance as a financing tool in PPP infrastructure projects may help mitigate information asymmetry problems. The role of project finance in promoting PPPs is crucial because it promotes risk transfer and optimal allocation among PPP stakeholders, and its potential use to mitigate information asymmetry problems warrants further empirical investigation.