The BIS consolidated international banking statistics

The latest BIS consolidated statistics show that financial turbulence in the first half of 1998 was associated with a massive withdrawal of international banking funds from emerging economies in Asia ($52 billion). ¹ The retreat encompassed all major Asian borrowing countries and brought the outstanding claims of BIS reporting banks on Korea and Thailand back to their 1994-95 levels. In contrast, banks further raised their exposure to other areas of the developing world, in particular Latin America (by $15 billion). However, the increase in claims on that region was largely driven by flows into Brazil, with some evidence of a general drying-up of banking funds between the first and second quarters.² At the same time, growing financial strains in Russia did not prevent BIS reporting banks from increasing their exposure to Eastern Europe, including to Russia itself, by $11 billion. ³

The fall in the weight of short-term claims in the total exposure to Asia, from 60% at end-1997 to 54% at mid-year, was the main feature of developments in the maturity composition of reporting banks' claims in the first half of 1998. This reflected agreements with Korea and Thailand on a rolling-over of outstanding debt but also, possibly, the non-renewal of trade-related and other forms of short-term credit to the region. Meanwhile, the share of short-term claims on Latin America remained, on average, stable at 55%. However, this masks a decline for Brazil (albeit to a level of 63% at mid-year, the highest among major debtor countries in the region) and a slight increase for Mexico (to 45%). In the case of Eastern Europe, there was a 1.3 percentage point rise in the relative importance of the short- term category. Nevertheless, at 45% at end-June (46% for Russia alone), its weight remains well below that reported for Asia and Latin America. When allowance is made for the high proportion of officially guaranteed claims on Russia, the total amount at risk for creditor banks in the region pales in comparison with that in Asia and Latin America.

When considering the sectoral composition of claims, local banking systems appear to have borne the brunt of reporting banks' retreat from Asia in the first half of 1998. A three percentage point decline in their share of total claims on the region brought it to a low of 37% at end-June. This raised the proportion of direct credit to the Asian non-bank sector to a record 54% at end-June, despite the cutback recorded in the absolute amount of such credit. In Latin America, in contrast, the further shift in the sectoral composition away from interbank and in favour of direct non-bank exposure seems to have reflected a genuine rebalancing of business. In Eastern Europe, the pattern was less even. In Hungary and Poland, the bulk of new financing was channelled to the local banking system. In Russia, most of the new funding was directed to local non-bank entities. Notwithstanding these developments, local banks in Eastern Europe remain the major avenue for the channelling of international banking funds, in contrast to Asia and Latin America.

Finally, the nationality composition of reporting banks' international claims underlines the widespread retreat of reporting banks from Asia during the first half of 1998. However, differences in the extent of withdrawal were reflected in a further strengthening in the share of European banks,⁴ to half of the total at end-June 1998, compared with 30% for Japanese banks and 9% for North American banks. Also of note was the sharp drop in the Asian exposure of the "other" category.⁵ Meanwhile, European and North American banks strengthened their presence in Latin America, with German banks taking the lead in the supply of fresh funds to Brazil. The last group was also the most active in Eastern Europe, although officially supported long-term credits were the main factor in the increased exposure to Russia.

¹ Changes in consolidated claims are adjusted for exchange rate movements.
² See the November 1998 issue of the BIS Quarterly Review.
³ Ibid., page 10.
⁴ However, breaks in series for the Netherlands mean that the June 1998 figures for this nationality group of banks are not fully comparable with earlier data.
⁵ See the note to Table 2 on page 10.>