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Info Service on Finance and Development (Aug21/01) Geneva, 30 Jul (Kanaga Raja) – Cross-border bank claims increased by $646 billion to reach a total of $36 trillion during the first quarter of 2021, the Bank for International Settlements (BIS) has said. In its latest statistics on international banking activity at end-March 2021, BIS said that the growth in claims on advanced economies was again strong in the first quarter (+$460 billion). Greater claims on borrowers in the euro area, United States and Japan was partially offset by a drop on those in the United Kingdom, it added. Claims on emerging market and developing economies rebounded in the first quarter, driven by lending to the Asia and Pacific region, said BIS. According to the Basel-based central bank for the world’s central banks, internationally active banks’ cross-border claims rose by $646 billion during the first quarter of 2021 (on a foreign exchange and break-adjusted basis), following strong growth in the previous quarter. A seasonal component in cross-border positions, whereby claim stocks fall at end-year and then rebound in the first quarter, may have contributed to the rise, said BIS. Despite the two consecutive quarterly expansions, the year-over-year (yoy) growth rate at end-Q1 stood at -0.6% due to the outsized $1.1 trillion contraction in Q2 2020, it added. The growth in cross-border claims on advanced economies (AEs) was again strong in the first quarter, up $460 billion following a $351 billion increase in Q4 2020. This mainly reflected a marked rise in claims on the euro area, the first such increase since the outbreak of the COVID-19 pandemic, said BIS. Claims on Germany and France rose the most, by $202 and $136 billion respectively, mainly the result of greater interbank loans (to related offices and unrelated banks). On the other hand, BIS said lower interbank claims on Italy drove a $9 billion decrease in claims on the country. Cross-border claims on other major AEs rose as well in the first quarter, it noted. Banks in Japan reported greater holdings of debt securities issued by non-financials in the United States, driving the overall $123 billion increase in claims on that country. Similarly, BIS said that banks in France channeled funds to their offices in Japan, driving the $89 billion increase on that country. On the other hand, claims on the United Kingdom dropped sharply, by $178 billion (-5% yoy). BIS said this was the result of lower claims on banks and non-bank financials in the country reported under “other instruments”, which captures mainly derivatives and equity holdings. This was reported by banks in several countries, and followed an outsized expansion of banks’ derivatives positions a year earlier, it added. CROSS-BORDER CLAIMS ON EMDEs EXPAND According to BIS, banks’ cross-border claims on emerging market and developing economies (EMDEs) surged in Q1 2021, driven by lending to the Asia and Pacific region. Overall, claims grew by $114 billion – the largest rise since Q1 2017 – with increases observed vis-a-vis three of the four EMDE regions, pushing the yoy growth rate of claims on EMDEs back into positive territory (+1.1%). Cross-border claims on the Asia and Pacific region rose the most, by $118 billion, the largest increase since 2017, said BIS. This mainly reflected a sharp $66 billion rise in claims on China, by far the largest amongst EMDE borrowers. Reporting banks in France, Macao SAR, Japan and Korea contributed some 75% of this increase, channeling funds to banks and non-financials in China. Banks’ claims on Chinese Taipei, Korea and India also increased (by $24, $15 and $3 billion, respectively), while those on Thailand shrunk (-$3 billion). BIS said claims on borrowers in the Africa and Middle East and the emerging Europe regions also rose (by $13 and $1 billion, respectively). In particular, claims expanded vis-a-vis Israel ($5 billion) and Qatar ($4 billion). In emerging Europe, Russia ($4 billion) and Hungary ($3 billion) recorded inflows, whereas Romania (-$2 billion) and the Czech Republic (-$2 billion) saw outflows. On the other hand, BIS said claims on Latin America continued to fall in Q1 2021 (-$18 billion), bringing the total decline since end-2019 to $89 billion. This pushed the yoy growth rate of cross-border claims on the region to -13.3%, its lowest level since Q2 2009, it added. Claims on most major countries in Latin America fell since end-2019, with those on Brazil (-$43 billion), Mexico (-$15 billion), Chile (-$10 billion) and Colombia (-$4 billion) falling the most. Claims on banks in the region contracted the most, followed by those on non-financials (including governments). Reporting banks, mainly in the Cayman Islands, Spain and the United States, reduced their interbank lending while banks in the United Kingdom reported lower holdings of debt securities issued by borrowers in Mexico, said BIS. FUNDS CHANNELED TO OFFICIAL SECTOR According to BIS, internationally active banks’ balance sheets have expanded significantly since the start of the COVID-19 pandemic. Reporting banks’ total assets grew from $67 trillion at end-2019 to $79 trillion by the first quarter of 2021, an 18% increase, with their total liabilities following a similar pattern, it said. Overall, banks’ foreign claims – i.e. cross-border claims and local claims booked by banks’ foreign affiliates – have risen by $3.6 trillion since end-2019. US banks’ foreign claims (on non-US counterparties) expanded the most, by $1.2 trillion, with greater claims on the official sector in advanced Europe and on non-bank financials in advanced Europe and the Cayman Islands, said BIS. Similarly, French and Japanese banks’ foreign claims also expanded, by $739 billion and $532 billion, respectively. However, the bulk – roughly 70% – of the increase in total claims since end-2019 reflected greater domestic claims, i.e. claims on residents of reporting banks’ home countries, said BIS. This pattern was evident across many banking systems, and as a result, reporting banks’ foreign claims accounted for 33% of their total consolidated claims at end-Q1 2021, down from 34% at end-2019. The expansion in banks’ balance sheets since the start of the pandemic has gone hand-in-hand with greater claims on the official sector, comprising governments and central banks, said BIS. Banks’ total claims on this sector – mainly in the form of holdings of government bonds and reserves at central banks – stood at $21.4 trillion at end-Q1 2021, up from $14.4 trillion at end-2019, a substantial increase of 48% in unadjusted stocks. According to BIS, over that period, the share of claims on the official sector in total claims of BIS-reporting banks (excluding Japanese banks) rose by almost 5 percentage points to reach 27% at end-Q1 2021. Canadian, French and US banks’ shares rose by roughly 7 percentage points, while all other banks’ shares rose by an average of 5 percentage points. According to BIS, banks channeled funds to the official sector both at home and abroad. It said that their domestic claims on the official sector in their home countries rose from $8.7 trillion at end-2019 to $13.5 trillion at end-Q1 2021 (excluding Japanese banks), accounting for a full 55% of the total increase over this period. At the same time, their foreign claims (including Japanese banks) on the official sector, in particular vis-a-vis the United States, grew by $532 billion, or 27%. Non-US banks’ claims on the US official sector, reflecting holdings of US Treasury securities and reserves at the Federal Reserve, reached $2.5 trillion, or 34% of their total consolidated foreign claims (up from 31% at end 2019). For their part, US banks’ foreign claims on the official sectors (outside the United States) reached $1.4 trillion, or 34% of their total foreign claims, said BIS. GLOBAL LIQUIDITY INDICATORS Meanwhile, in a box insert to its main report highlighting its global liquidity indicators at end-March 2021, BIS reported that US dollar credit to borrowers outside the United States reached $13 trillion at end-Q1 2021, up 4% yoy. [The BIS global liquidity indicators track credit to non-bank borrowers, covering both bank lending and bond market financing. The main focus is on foreign currency credit, i.e. credit denominated in the three main reserve currencies (US dollar, euro and Japanese yen) to non-residents, i.e. borrowers resident outside the respective currency area.] The growth in euro credit to borrowers outside the euro area remained weak by comparison, up 1% yoy to reach EUR 3.5 trillion (equivalent to $4.1 trillion), and the growth in Japanese yen credit to borrowers outside Japan was -7% yoy, pushing the amounts outstanding down to 47 trillion yen ($0.4 trillion), said BIS. These growth rates are lower than in the years before the pandemic, and weaker than those for credit to residents in these three currency areas, it added. In each of the main currencies, credit to resident non-bank borrowers has grown faster than credit to non-residents since the start of the pandemic. In the most recent quarter, it expanded by 11%, 8% and 5% yoy, for the US dollar, euro and yen, respectively. “The surge in credit to residents during this period was fuelled by increased government borrowing, reflecting the pandemic’s impact on government finances and efforts to mitigate its economic effects,” said BIS. The yoy growth in bank lending dipped noticeably in Q1 2021, leaving borrowers to raise foreign currency funding in bond markets, it added. The growth in US dollar credit to emerging market and developing economies (EMDEs) remained stable overall, but with considerable heterogeneity across regions, said BIS. Dollar credit to borrowers in Africa and the Middle East grew at 11% yoy, continuing the strong trend evident since 2014. Within this region, credit to borrowers in Saudi Arabia grew robustly (15% yoy), whereas credit to those in South Africa contracted (-8% yoy). BIS said that dollar credit borrowers in emerging Asia-Pacific grew more moderately at 6% yoy, exceeding the 1% average annual growth observed in the four years prior to the pandemic. Credit to China grew over the past four quarters (8% yoy), whereas credit to India contracted (-6% yoy). Dollar credit to Latin America ground to a halt in the most recent quarter, down from an average 4% yoy growth rate over the past five years, said BIS. While Mexico attracted dollar credit at the rate of 3% yoy, credit to both Argentina and Brazil dropped sharply by 9% each. Dollar credit to emerging Europe grew marginally, by 1% yoy, following six years of negative growth rates, said BIS. Modest growth in dollar credit to Turkey (3%) contrasted with a rapid decline in that to Russia (-11%), it added. The divergence in dollar credit across individual EMDEs was mainly due to the developments in bank lending, contrasting with strong bond issuance overall, said BIS. In Asia-Pacific, China, Chinese Taipei and Korea registered strong increases in bank lending, ranging from 6% to 16% yoy, resulting in bank lending to the region as a whole seeing a modest growth of 2% yoy. This, coupled with vigorous bond issuance in the region overall (14% yoy), contributed to robust growth in overall dollar credit to Asia-Pacific, said BIS. In contrast, bank lending to the major economies in Latin America dropped in the year to Q1 2021, resulting in a decline of 13% for the region as a whole. This, together with moderate bond issuance (7%), resulted in flat credit growth overall, said BIS.
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