Asia's domestic banks outgunned their global rivals in the region's local currency bond markets in 2009, capturing about half the market share of trading volumes, according to a report.

The development came as trading volumes shifted dramatically from bonds denominated in G3 currencies – dollars, euros or yen – and towards those in domestic currencies such as the Chinese renminbi and the Indian rupee.

“Domestic banks' extensive infrastructures and deep ties to local investors and companies give them a distinct advantage over most global banks in the competition for local currency trading business,” said Abhi Shroff of Greenwich Associates, the research house that produced the survey.

He said some global dealers such as Citigroup had scaled back their capital markets coverage in certain Asian countries during the financial crisis.

That allowed domestic banks to sweep in and capture newly freed-up business.

During last year's surge, trading volumes in domestic currency Asian bonds totalled $941bn among the 748 investors surveyed by Greenwich.

In China, domestic trading volumes jumped 423 per cent from 2008 to 2009. Volumes rose 242 per cent in India and by 111 per cent in South Korea.

About two-thirds of trading volumes were comprised of government securities.

Unlike in past years, when global banks dominated the market, in 2009 domestic players took about 50 per cent of trading volumes.

Domestic banks had a market share of about 30 per cent in 2008 and just 16 per cent in 2007, Greenwich said.

“Global banks without a significant presence in local currency markets have been placed on the defensive, while dealers that have developed footholds in domestic markets have gained a big advantage,” said Mr Shroff.

HSBC and Standard Chartered were the international banks with the strongest positions in domestic Asian credit, with market shares of 12.4 per cent and 11.1 per cent respectively.

Deutsche Bank had a market share of 6.3 per cent, down from 15.3 per cent in 2007, while Citigroup's share of 5.8 per cent was down from 14.7 per cent two years ago.

Among the domestic banks that made big gains in market share were Bank of China, Agricultural Bank of China, and India's ICICI and Derivium Capital.

Bank of China's presence on its home turf was so strong that it was the third biggest dealer in Asia, with a market share of 7 per cent in 2009, up from 2.1 per cent in 2007.

Investors told Greenwich that domestic banks were not only winning business through cheap pricing, but had made significant upgrades to the quality of their trading and research capabilities.