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TWN Info Service on Finance and Development (Oct19/01)
31 October 2019
Third World Network


Cross-border bank claims see highest growth since GFC

Published in SUNS #9006 dated 28 October 2019

Geneva, 25 Oct (Kanaga Raja) — Global cross-border bank claims expanded by 6% year over year, their highest annual growth rate since the Great Financial Crisis (GFC), the Bank for International Settlements (BIS) has reported.

In its latest statistical release on international banking activity till end-June 2019, BIS said that growth in lending to all major sectors increased, while claims on non-bank financial institutions continued to expand most rapidly (13% year over year).

On the other hand, growth in cross-border claims on emerging market and developing economies varied considerably by region, from +11% in Africa and the Middle East to -8% in developing Europe.

According to the Basel-based central bank for the world’s central banks, global cross-border bank claims rose by $365 billion during the second quarter of 2019, to reach $31 trillion by end-June.

Their annual growth rate, which averaged around 0% since the Great Financial Crisis, reached a post-crisis high of 6%.

According to BIS, reporting banks’ cross-border claims on all major sectors expanded during Q2 2019.

The $190 billion expansion in claims on non-banks accounted for more than half of the overall quarterly increase in global cross-border claims.

This, in turn, was mostly driven by claims on non-bank financial institutions (NBFIs), which increased by $172 billion, resulting in an annual growth rate of 13%.

(According to BIS, NBFIs include entities such as insurance companies, pension funds, hedge funds and money market funds.)

The majority of this new lending to NBFIs was directed towards a few financial centres, such as the Cayman Islands ($37 billion), the United Kingdom ($34 billion) and Luxembourg ($24 billion).

The latest increase in lending to NBFIs is part of a longer trend, BIS observed, noting that over the past five years, cross-border claims on that sector have grown at an average annual pace of 7% (compared with 1% for claims on all sectors), reaching $7 trillion at mid-2019.

According to the BIS consolidated banking statistics (CBS), the surge in lending to NBFIs over the past few years was mainly driven by Canadian, French, Japanese, UK and US banks.

Claims on borrowers located in advanced economies (AEs) expanded at a rapid pace, said BIS.

They grew at an annual rate of 7%, which took their outstanding stock to $21 trillion at end-June 2019.

Their latest quarterly increase was primarily driven by claims on the United Kingdom (+$67 billion), France (+$65 billion), and Germany (+$61 billion).

In contrast, claims on the United States declined by $30 billion.

Lending to offshore financial centres (OFCs) remained strong, growing at 6% year over year. It stood at $5 trillion as of end-June 2019, mostly to the benefit of NBFIs.

Banks reported large increases in their claims on the Cayman Islands (+$45 billion), Jersey (+$9 billion) and Hong Kong SAR (+$8 billion).

CROSS-BORDER CLAIMS ON EMDEs

According to BIS, cross-border claims on emerging market and developing economies (EMDEs) rose by $43 billion during Q2 2019.

As a result, their annual growth rate increased slightly (from 2% at end-March to 4% at end-June), but still remained considerably below its recent peak of 9% at end-2017.

The outstanding stock stood at $4.1 trillion at end-June 2019.

The overall figures for EMDEs conceal considerable heterogeneity across regions, said BIS.

The contraction in cross-border claims on developing Europe, which started in the middle of 2018, deepened in Q2 2019.

The annual growth rate of lending to the region dropped to -8% at end-June 2019.

The decline in Q2 2019 was largely due to a sharp contraction in claims on Turkey (-$11 billion).

In contrast, cross-border lending to borrowers in developing Asia-Pacific rose by $27 billion, bringing the annual growth rate to 4%.

Claims on China, up by $25 billion, accounted for almost the whole increase.

Those claims have grown from a recent low of $699 billion (at end-March 2016) to $990 billion (at end-June 2019).

According to BIS, the annual growth rate of cross-border claims on developing Latin America and the Caribbean accelerated to 7% in Q2 2019, after spending several years in negative or near-zero territory.

Lending to developing Africa and the Middle East continued to expand rapidly, reaching an annual rate of 11% as of end-June 2019, it said. +

 


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