Diverging trends emerge in global banking

MANILA, Philippines - During the first quarter of 2013, the cross-border claims of Bank for International Settlements (BIS) reporting banks remained broadly unchanged, reflecting two diverging trends.

The BIS is an international organization of the world’s central banks, which fosters international monetary and financial cooperation. It is often referred to as the “central bank of the world’s central banks.”

In a statement, the BIS said that the first diverging trend is that lower interbank lending, especially to banks in the euro area, was largely offset by higher claims on non-banks.

Second, lower lending to advanced economies contrasted with higher claims on borrowers in emerging market economies, especially in China, Brazil and Russia.

As a result, the share of interbank credit to emerging market economies reached its highest level on record.

“This underpins a longer-term trend: especially in emerging Asia and Latin America, countries generally have been affected less by the global financial crisis,” it said.

Japanese banks have returned to their position as the world’s largest providers of cross-border credit.

BIS said that Japanese banks have increasingly been lending out of their offices abroad, whereas the share of cross-border claims booked in Japan has been declining. The international advance of Japanese banks has been funded largely through sources in Japan.

Financial and non-financial corporations headquartered in emerging market economies have overtaken firms from the advanced economies as the largest group of issuers of corporate debt securities in offshore financial centers.

The surge in issuance is primarily due to borrowers in just two countries, China and Brazil. Issuing bonds through controlled entities in offshore centers allows them to reach an investor base that would find it hard to invest locally.

Spurred by tighter regulatory requirements and market pressure, banks have steadily raised their capital ratios since the financial crisis.

BIS documents show banks went about increasing their risk-weighted capital ratios, and that retained earnings account for the bulk of the increase.

Banks lowered the share of profits paid out as dividends and, in the advanced economies, increased lending spreads. Reductions in risk weights played a lesser role.

Fears that banks would stop lending have thus not been borne out, at least at the aggregate level.

On average, banks continued to expand their lending, though lending growth was slower among European banks than others.

Banks that came out of the crisis with higher risk-weighted capital ratios and stronger profitability were able to expand lending more.