Geneva, 29 Apr (Kanaga Raja) – US dollar credit to non-bank borrowers outside the United States grew by 6%, to reach $12.2 trillion at end-2019, the Bank for International Settlements (BIS) has said. In its latest statistical release of global liquidity indicators at end-December 2019, BIS said that the annual growth rate of euro-denominated credit outside the euro area slowed to 6%, while that of yen-denominated credit outside Japan turned negative (-1%).
According to the Basel-based central bank for the world’s central banks, US dollar-denominated credit to non- banks outside the United States grew by 6% during 2019, taking the outstanding amount of this credit to $12.2 trillion as of end-2019.
Growth in euro-denominated credit to non-banks outside the euro area slowed to 6% year on year (y-o-y), reaching EUR 3.4 trillion (equivalent to $3.8 trillion).
Credit denominated in Japanese yen to non-banks outside Japan contracted at 1% y-o-y.
Bank loans were the main driver of the deceleration observed for both currencies, said BIS.
US dollar-denominated credit to non-banks in emerging market and developing economies (EMDEs) grew by 5% during 2019.
Euro-denominated credit to those borrowers expanded at an even faster clip (10% y-o-y). It has consistently expanded more rapidly than US dollar credit for more than five years.
Nevertheless, said BIS, the outstanding stock of euro-denominated credit to EMDEs (EUR 763 billion, equivalent to $857 billion) was still considerably smaller than its US dollar counterpart ($3.9 trillion).
US dollar-denominated credit expanded in all but one EMDE region during 2019, said BIS.
Credit to Africa and the Middle East, which has been growing at double-digit rates since mid-2015, rose by 14% in 2019.
Credit to emerging Asia-Pacific and Latin America also expanded, by 4% and 3%, respectively, during 2019.
In contrast, US dollar-denominated credit to emerging Europe declined by 4% during 2019, bringing down its outstanding stock to $400 billion at end-2019.
Dollar credit to emerging Europe has contracted at an average annual rate of 7% since 2014. During the same period, euro-denominated credit to the region expanded at an average annual rate of 6%.
As a consequence, the outstanding stock of euro-denominated credit to emerging Europe has surpassed its US dollar counterpart and stood at EUR 377 billion (equivalent to $423 billion) at end-2019.
According to BIS, the instrument composition of foreign currency credit contains important clues regarding the potential impact of the Covid-19 pandemic on international credit markets.
On the one hand, debt securities tend to have longer maturities, reducing rollover risk. On the other hand, lengthier duration of longer-maturity bonds makes borrowers’ balance sheets more sensitive to changes in long-term interest rates and exchange rates, it said.
During the run-up to the Great Financial Crisis (GFC) of 2007-09, the share of debt securities in total US dollar-denominated credit outside the United States fell considerably, from 50% at end-2002 to 40% at end-Q1 2008.
After the GFC, this share increased steadily, reaching 52% at end-2019, as a part of a broader global trend of financial intermediation shifting away from bank loans to bond markets.
This share also increased considerably for the sub-group of EMDE borrowers – from 33% at end-Q1 2008 to 47% at end-2019.
The post-GFC trend towards greater reliance on bond markets has manifested itself in all major EMDE regions, albeit with different intensities, said BIS.
The shift towards bond markets has been most pronounced in emerging Europe and Africa and the Middle East, where the shares of debt securities rose from 25% and 18% at end-Q1 2008 to 49% and 44% at end-2019, respectively.
The corresponding share for Latin America, which has historically always been relatively large, reached a record high of 65% at end-2019.
The post-GFC shift towards bond markets was least pronounced in emerging Asia, where the share of debt securities increased only marginally, from 31% at end-Q1 2008 to 35% at end-2019, but remained considerably below its end-2002 level (45%), said BIS.
– Third World Network
