Info Service on Finance and Development (Jan21/03)
Geneva, 28 Jan (Kanaga Raja) – Global cross-border bank claims saw a modest contraction of $93 billion in the third quarter (Q3) of last year on a foreign exchange (FX)- and break-adjusted basis, the Bank for International Settlements (BIS) has said.
In its latest statistics on international banking activity at end-September 2020, BIS said the quarterly contraction was quite muted (0.3% of previous quarter stock) compared with the large fluctuations in the first quarter (Q1) and second quarter (Q2) of 2020, of +$2.7 trillion and -$1.2 trillion, respectively.
BIS said that year-on-year (yoy) growth rates continued to fall from their recent Q1 2020 peak, when cross- border positions had surged.
According to the Basel-based central bank for the world’s central banks, claims on both advanced economies (AEs) and emerging market and developing economies (EMDEs) declined, by $131 billion and $13 billion, respectively.
As earlier in the year, these movements were in part driven by intragroup positions, said BIS.
The decline in claims on AEs centred on related offices (-$114 billion), especially on those in the United States (-$81 billion).
The unwinding of central bank dollar swap lines, which had swelled intragroup positions in Q1, contributed to this decline, said BIS.
On the other hand, claims on offshore centres expanded by $41 billion, especially vis-a-vis Hong Kong SAR (+$39 billion) and the Cayman Islands (+$24 billion).
BIS said more than half of the increase on Hong Kong was in the form of intragroup claims. Some of the larger movements vis-a-vis AEs involved non-bank financial institutions (NBFIs), it noted.
Claims on the United Kingdom (-$50 billion), the Netherlands (-$50 billion), Luxembourg (-$46 billion), France (-$40 billion) and Italy (-$39 billion) all fell, mostly vis-a-vis NBFIs.
These declines were partly offset by increases in claims on Japan (+$97 billion) and Germany (+$65 billion), notably on their resident banks and NBFIs, said BIS.
According to BIS, the modest aggregate decline also conceals large differences on the creditor side.
Banks located in China, France and the United Kingdom saw the greatest increases in cross-border claims while those in Spain, Germany and the United States reported outsize declines, it said.
CROSS-BORDER CLAIMS ON EMDEs
According to BIS, cross-border claims on EMDEs contracted for the second consecutive quarter in Q3 2020, by $13 billion, and their year-on-year growth remained negative.
Although smaller than in Q2, the quarterly decline was again driven by claims on borrowers in Latin America (-$17 billion), it said.
“More than three-quarters of the drop was on the major economies in the region, i.e. Brazil, Mexico, Chile, Colombia and Argentina.”
Claims on non-financial corporations in these countries fell the most, BIS said.
During the pandemic, creditor banks located in AEs and offshore centres have reported a large contraction in their cross-border claims on EMDEs, while creditor banks within EMDEs reported a modest expansion, BIS added.
As a result, global cross-border claims on EMDEs declined by a combined $95 billion during the second and third quarters of 2020.
Major AE and offshore creditors to EMDEs, such as banks located in the United States, the United Kingdom, Hong Kong SAR, Singapore and Japan, reduced their lending by a combined $97 billion during this period.
In contrast, banks in EMDEs booked a $26 billion increase in cross-border claims on EMDEs during the past two quarters.
The expansion was led by banks in emerging Asia-Pacific, mainly China and Chinese Taipei, said BIS.
CLAIMS ON THE OFFICIAL SECTOR
According to BIS, the fluctuations in cross-border positions provide but a partial picture of how internationally active banks’ balance sheets have evolved during the Covid-19 pandemic.
A more comprehensive view based on the BIS consolidated banking statistics (CBS), which track the globally consolidated positions of banks headquartered in a given country (net of inter-office positions), shows that their total assets and liabilities have actually surged since the same period last year, it said.
The total assets of banks headquartered in 22 BIS reporting countries grew from $67 trillion at end-Q3 2019 to $75 trillion by the third quarter of 2020, an increase of 12%, with total liabilities following a similar pattern, it added.
“The bulk of the increase in claims was in domestic positions (i.e. claims on residents of the reporting banks’ home country).”
Compared with the same period (Q3) the year before, banks’ consolidated total claims have increased by $8 trillion in aggregate, with almost 80% of this being on their home country borrowers, said BIS.
This pattern was evident across many banking systems, it added.
On the other hand, banks’ foreign claims – i.e. cross-border claims and local claims booked by their affiliates located abroad – contributed only 20% to the increase during this period.
As a result, BIS reporting banks’ portfolios have turned more domestic since the onset of the pandemic. Across several reporting banks, this share has decreased by about 2 percentage points, said BIS.
For Canadian, French, German, Spanish and Swiss banks, the share declined by 2-4 percentage points compared with the same period the year before, namely Q3 2019.
According to BIS, the expansion in total claims was mainly vis-a-vis the official sector, comprising governments and central banks.
Outstanding claims on this sector – mainly holdings of government bonds and reserves at central banks – stood at $19 trillion at end-Q3 2020, up from $14 trillion a year earlier, representing a 34% increase, it said.
Over that period, their share in total claims at Canadian and US banks rose by roughly 6 percentage points.
The official sector share for many other banking systems also rose noticeably, by 3-4 percentage points. Banks’ claims on the official sector of their home country generally grew the most, said BIS.
These developments went hand-in-hand with a rise in bank deposits, mostly from residents in banks’ home countries, it added.
“The growth in deposits has been evident since 2014, but accelerated during the pandemic,” said BIS.
End-Q3 2020 data show that the share of deposit liabilities in total liabilities increased by about 3 percentage points from a year earlier for several banking systems combined.
According to BIS, this rise contrasts with the overall stability observed in the previous two years.
European banks, e.g. from Belgium, Finland, France, the Netherlands, Spain and Sweden, saw jumps of 4-7 percentage points in these shares compared with the year before.
Other banking systems (e.g. German, Italian, Swiss, UK and US banks) also recorded increases, said BIS.