``We've had a couple of years of above-trend activity and it couldn't go on forever,'' a banker said. ``You've had a lot of people prepaying and refinancing and they can't do it again.''

The Lunar New Year, which fell in the second week of February, also reduced loan volume by pushing deal closings into the second quarter, bankers said.

Syndicated loans across the region totaled US$14.1 billion (HK$109.9 billion) in the first three months of this year according to Thomson Financial. That is down 9 percent from US$15.5 billion in the first quarter of last year and the lowest since the US$13.4 billion level of the first three months of 2003.

The decline in loan demand has been a boon for those companies that still wished to borrow, as cash-rich banks were willing to cut fees to win business.

Taiwan led the region with US$2.7 billion in loans, down from the US$4.8 billion in the first quarter of 2004. Last year's demand was boosted by semiconductor manufacturers, who arranged cheap loans and now have no immediate need for more cash.

Hong Kong came in second with US$2.6 billion in deals, despite having the largest deal in Asia in the first quarter when property developer Sun Hung Kai arranged a US$1.6 billion loan partially to refinance existing debt. In the first quarter of 2004, Hong Kong loans topped US$3.2 billion. Third place went to China at US$1.2 billion down from US$1.6 billion.

On the way up was South Korea, which almost doubled volume to US$2.3 billion on the back of deals by the country's shipping industry. Malaysia raised issuance by US$400 million over last year's levels as government-owned companies refinanced debt. In India, loans grew by just over US$100 million as it became cheaper to borrow in US dollars.

Citigroup was the top arranger with US$1.2 billion in deals, followed by Standard Chartered with US$893 million and BNP Paribas at US$874 million, according to Thomson.

Bankers, who say deal pipelines are still full, nonetheless reckon that full-year demand will come in about 10 percent below 2004 levels at US$79 billion.

tim.leemaster@singtaonewscorp.com