KUALA LUMPUR, Nov 19 — Malaysia will likely avoid a feared repeat of the 1997 Asian financial crisis, but its firms and others in Asia could find themselves exposed after gorging on cheap loans abroad.

Lured by interest as low as 1.7 per cent over base rates, Malaysian firms hungry for capital have joined Asian neighbours in taking up foreign loans that could leave them doubly exposed to both interest and foreign exchange rate fluctuations.

According to date from Thomson Reuters LPC, companies from Malaysia, Indonesia, the Philippines, Vietnam, and India have amassed between them over US$36 billion (RM115 billion) in foreign loans as at October, or over 50 per cent more than the same time last year.

One such firm, oil and gas service provider SapuraKencana Petroleum is aiming for a US$5.8 billion that, if successful, could become Malaysia’s largest-ever dollar-based corporate loan.

“Foreign borrowing will always come with its risks, particularly if the domestic currency devalues,” Kaushik Rudra, global head of credit research at Standard Chartered Bank, was quoted as saying in a Wall Street Journal (WSJ) report.

The loans taken primarily in US dollar can end up costing borrowers more if their home currency drops in relation to the greenback, but they may also end up saving on payments if the loan currency falls.

Since the start of the year, however, Indonesia and India have seen their currencies lose 17 and 13 per cent respectively versus the US dollar, while the ringgit has shed 4 per cent in the same period.

Also, unlike bonds with fixed payouts, the foreign loans that these companies take are often directly affected by benchmark rates such as the London interbank offered rate (Libor), which could mean higher repayments if these go up.

They are also vulnerable to monetary policy shifts, such as the anticipated expected rollback of the US Federal Reserve’s stimulus programme.

“Asian investors anticipate that tapering by the Federal Reserve [of its bond-buying programme], should it occur at some stage in 2014, will result in 10-year US treasuries' yields rising above 3 per cent (from just below 2.7 per cent now), and wider credit spreads for Asian corporates,” according to a survey published by Fitch Ratings yesterday.

“This, in turn, is likely to lead to tighter borrowing conditions, and a higher rate of defaults among Asian corporates.”

Previously, business daily the Financial Times has noted the same issues as well as the appearance of what it described as a “credit bubble” in Asia.

“One concern is that much Asian growth since 2008 has been bought on credit,” the newspaper said.

“The danger of a bubble could be exacerbated in some economies by the fact that, until recently, currencies were exceptionally strong. That was the result of big inflows of money from the US that are now reversing.”

The Asian financial crisis that swept the region in 1997 had caused interest rates to skyrocket and regional currencies to plunge, overwhelming the ability of companies with foreign currency debt to service their loans.

Yesterday, local investment expect Chen Fan Fai said Malaysia itself was unlikely to undergo a crisis as extensive as that seen in 1997, saying economies in the Asian region were now more robust and would be able to weather the shock of a stimulus withdrawal by the Fed.