BIS consolidated international banking statistics for the fourth quarter of 2001
8 May 2002
The consolidated international banking statistics released by the BIS today show that the shift out of short-term debt apparent in securities markets for much of 2001 spread to the international banking market in the fourth quarter.1 International claims with a remaining maturity of one year or less booked by banks in the reporting area dropped sharply between end-September and end-December. The resulting shift in the maturity distribution of banks' on-balance sheet positions was evident across a broad range of borrowers and reporting banks. International banks continued to invest in longer-term instruments, leaving total claims on many countries unchanged. However, in a few countries, most notably Argentina, total international claims contracted as short-term positions were not rolled over.
Sharp decline in short-term bank claims
Between end-September and end-December 2001, foreign claims of banks in the BIS reporting area declined by 1% to $11.5 trillion.2 Currency movements, in particular the depreciation of the euro and the yen against the US dollar, resulted in substantial declines in the US dollar value of claims denominated in these currencies. If the data are adjusted for these movements, then consolidated bank claims in fact increased by around ½%.
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Local claims in local currencies grew even faster, but this growth was offset by a contraction of international claims.3
The most notable development during the fourth quarter was a large decline in short-term bank claims. In the latter part of 2000 and first half of 2001, claims with a remaining maturity of one year or less had trended upwards as a proportion of reporting banks' international claims. This trend began to turn in the third quarter and such claims then dropped by 2 percentage points during the fourth, to 52% of outstanding international claims (Graph 1). Claims with an original maturity of one year or less accounted for all of this decline; maturing longer-term debt is estimated to have remained stable as a proportion of international claims, at approximately 3%.4
The shift in the maturity distribution of international claims was amplified by an increase in longer-term credits. In other words, even while cutting back their short-term claims, banks in the reporting area continued to invest in longer-term instruments (although not by enough to cover maturing credits). As a further indication of banks' willingness to lend, foreign claims on US borrowers increased by 6% in the fourth quarter, boosted by a large increase in the local claims of foreign banks' US affiliates.5
The apparent willingness of banks to take on new longer-term exposures suggests that the decline in short-term claims in the fourth quarter was not driven primarily by an increase in banks' risk aversion. While rising levels of credit rating downgrades and defaults, including high-profile bankruptcies such as Enron, prompted banks to re-examine the management of their potential credit exposures, weaker corporate demand for short-term credit was a more important factor behind the drop in short-term debt. The cyclical downturn reduced firms' need for short-term financing. In addition, relatively low long-term yields and volatile financing conditions in commercial paper markets encouraged borrowers to extend the maturity of their debt. In debt securities markets, these factors contributed to a shift out of short-term instruments into longer-term instruments throughout much of 2001; the fourth quarter saw a similar shift occur in banking markets.
The shift in the maturity distribution of international claims was evident across a broad range of reporting banks (Graph 1). The share of short-term claims in the international
claims of European banks fell by 3 percentage points between end-September and end-December, to 51%. For Finnish, Danish, Spanish, Dutch and German banks, the share fell by even more. Short-term claims of US banks fell by a remarkable 8 percentage points to 62%. Japanese banks too cut back their short-term claims, to 27% of international claims.
The shift in the maturity distribution was also evident across a broad range of borrowers. Europe and the United States experienced equally large drops in the ratio of short-term to international claims. For example, in France short-term bank claims fell to 55% of international claims from 59%, in Italy to 36% from 39% and in the United States to 40% from 43%. Among the largest economies Japan was the exception, seeing the share of short-term claims in international claims rise to 55% from 51%. This rise reflected the unwinding of loans to Japanese residents booked through Japanese banks' offices in banking centres abroad.6 Taking only the consolidated claims of foreign banks, ie excluding claims on Japan booked by Japanese banks' overseas offices, the short-term share remained stable at 55%.
The drop in short-term claims was larger for bank borrowers than non-bank borrowers. This was particularly true in the euro area, where claims on the banking sector fell to 50% of international claims in the fourth quarter from 52% in the third. In the United States, claims on the banking sector remained stable, but after several quarters of modest declines claims on the public sector turned upwards.
Claims on Argentina fall while those on Russia rise
In emerging economies too, short-term claims contracted noticeably in the fourth quarter, falling by 1 percentage point to 46% of international claims and resulting in a 2% decline in outstanding claims. However, the direction of and influences on changes in international banks' positions varied significantly across regions. The crisis in Argentina contributed to a 5% decline in international bank claims on Latin America, dragging down the aggregate figure for emerging economies. By contrast, in Russia and Southeast Asia banks in the reporting area increased their exposure.
Argentina saw a precipitous drop in consolidated claims in the fourth quarter, as banks accelerated the pace of cutbacks in response to the crisis there. Foreign claims, including claims of foreign banks' Argentine affiliates, contracted by nearly 10% (Graph 2). Maturing trade credits and other short-term claims were not renewed, leading to a decline in the share of short-term claims in international claims to 51% in the fourth quarter from 54% in the third. All sectors were affected by these cutbacks, leaving the sectoral distribution of claims more or less unchanged. In addition to cutting back credit to Argentine residents, banks in the reporting area reduced their claims on the foreign offices of Argentine banks. Consequently, claims on an ultimate risk basis fell to 92% of foreign claims at end-December from 95% at end-September.
Several other countries in Latin America also experienced declines in short-term bank claims in the fourth quarter. Short-term claims on Brazil and Mexico, which had been stable as a proportion of international claims during the first three quarters of 2001, fell by 2 percentage points between end-September and end-December, to 47% and 37%, respectively. Cutbacks in credit to the banking and public sectors accounted for most of the decline. The share of short-term claims in international claims on Peru dropped to 59% in the fourth quarter from a peak of 68% in the second. These declines notwithstanding, spreads on foreign bonds issued by Brazil and Mexico narrowed during the fourth quarter. Furthermore, the Brazilian real and Mexican peso appreciated against the US dollar, resulting in substantial increases in the US dollar value of international banks' local currency positions.
Even while withdrawing from Argentina, foreign banks began to increase their exposure to another country previously in default: Russia. Foreign claims on Russia reached a trough in the second quarter of 2001 and have since increased by approximately 10% (Graph 2). The ratio of short-term to international claims rose to 36% at end-December from 30% at end-June, indicating that much of this new lending was short-term. The non-bank private sector, especially the energy sector, was the primary beneficiary; its share in international
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claims on Russia rose by 3 percentage points during the second half of 2001, to 43%. Dutch and US banks led the turnaround in claims on Russia, but German banks remained by far the largest creditors, accounting for 46% of outstanding foreign claims on an ultimate risk basis at end-December.
In the fourth quarter of 2001, Southeast Asia too saw a tentative pickup in international bank lending. Banks increased their international claims on the Philippines and Malaysia, but this was partially offset by a further contraction in claims on Indonesia. Claims on northern Asian economies continued to decline on a contractual basis. However, borrowing by Korean and Taiwanese corporations' overseas subsidiaries contributed to a rise in claims on an ultimate risk basis to 104% and 105%, respectively, of contractual claims on these two economies.
Claims on South Africa contracted sharply during the fourth quarter, with international claims falling by 5%. This decline was entirely attributable to the large depreciation of the South African rand. In addition to rand-denominated claims booked by foreign banks' local affiliates in South Africa, international banks hold substantial amounts of rand assets abroad. As much as one quarter of the $18 billion outstanding stock of banks' international claims on South African borrowers is denominated in local currency, a higher proportion than in nearly all other emerging economies.
1 A second set of BIS international banking statistics - the locational statistics - will be released on 27 May 2002 in the BIS Quarterly Review: International banking and financial market developments. The consolidated banking statistics provide a measure of the foreign exposure of national banking systems, while the locational statistics provide a better approximation of cross-border capital flows. A currency breakdown is not available for the consolidated statistics, and so exchange rate movements can result in changes in outstanding consolidated positions reported in US dollars even when positions remain unchanged. The explanatory notes at the end of this press release describe the consolidated statistics in more detail, and the statistical annex of the BIS Quarterly Review outlines the main differences between the two sets of international banking statistics. The consolidated and locational banking statistics are available on the BIS website (www.bis.org) and in the statistical annex of the BIS Quarterly Review. They are also included in the joint BIS-IMF-OECD-World Bank quarterly release on external debt (www.bis.org/publ/r_debt.htm).
2 "Foreign claims" comprise BIS reporting banks' cross-border claims in all currencies plus their foreign affiliates' local claims in both local and foreign currencies. "International claims" are defined as reporting banks' cross-border claims plus their foreign affiliates' local claims in foreign currencies.
3 Claims on several countries were boosted between end-September and end-December 2001 by the addition of India as a reporting country and mergers and acquisitions. Foreign claims of banks headquartered in India totalled $19 billion at end-December. Consolidation of acquired institutions' positions with those of reporting banks accounted for two thirds or more of the increase in local positions on the Czech Republic, Poland, Slovenia and Turkey, and for approximately one fifth of the increase in local positions on Brazil and the
4 This figure underestimates the proportion of short-term debt that was originally longer-term because Luxembourg and the United States do not report a one- to two-year maturity breakdown and Hong Kong SAR does not report any maturity breakdown.Full document including graphs and tables