BIS consolidated international banking statistics for end-June 2000
3 November 2000
Total contractual claims(2)largely unchanged
Total worldwide consolidated claims of BIS reporting banks increased marginally in the second quarter of 2000,(3) following a strong 5% rise in the previous quarter. This left growth in banks' total exposure at 6% on an annual basis,(4) relative to the second quarter of 1999, the first period for which fully comparable data including positions on developed countries are available.
International bank exposures to developed countries overall increased only marginally to $6,009 billion, but this masked some substantial underlying shifts. As the previous quarter's large bridge loans to telecommunications companies in Europe were refinanced by bond issues,(5) banks' short-term exposure to the region dropped by $81 billion. The parallel $59 billion increase in long-term and unallocated claims on Europe suggests that banks also took up a sizeable proportion of these new bonds. Banks also increased their exposure to the United States by an unusually large $69 billion (of which almost two-thirds to the non-bank private sector), investing mainly in securities issues.(6)
Banks headquartered in Europe, in particular Germany and France, reduced their exposure to offshore centres by $22 billion, but this was partly offset by a $16 billion increase in the positions of Japanese banks. The broad sectoral shift among recipients from banks to non-bank private sector entities continued, with the latter now accounting for 61% of total exposure.
Banks' exposure to developing countries was largely stable at $864 billion. A $11 billion(7) decline to $287 billion was reported for the Asia and Pacific region, including a $7.3 billion net repayment mainly by the banking sector in South Korea. Positions on Latin America and Caribbean rose by $3.7 billion. European banks, in particular Spanish banks, increased their exposure to Argentina by $3.1 billion, partly by taking up government bonds. Claims on Brazil increased by $2.1 billion in a context of stronger industrial and export activity.
Bank exposures to developing countries in Europe rose by $1.8 billion to $171 billion, with positions on Turkey increasing by $3.1 billion. Claims on Russia declined once more, bringing the cumulative reduction in exposure over the 12 months since June 1999 to $7.3 billion, including some relief granted to Russia on its Soviet era debt by the London Club of commercial creditors in February this year.
In Africa and the Middle East, overall exposure fell by $0.9 billion to $123 billion. A further $1.1 billion decline in lending to the banking sector in South Africa and reductions vis-à-vis Iran and Israel were partly offset by increased positions on the United Arab Emirates.
Some pickup in short-term exposure to developing countries(8)
Since the Asian crisis of 1997, reporting banks have drastically reduced their short-term exposure to Asia and, to a lesser extent, to other regions (Graph 1). Banks' short-term exposure to Indonesia, Malaysia and Thailand in particular has fallen continuously over the last four years, with the amount of maturing long-term debt remaining quite stable. In South Korea, there was a much more drastic reduction of short-term exposure initially, including the roll-over for one to three years of about $22 billion of short-term debt to banks in April 1998. Since 1998, the amount of short-term exposure has increased again. But, as is evident from Graph 2, most of the upturn since 1999 was due to maturing long-term debt (including the amounts rolled over) rather than a strong increase in financing with an original maturity of less than one year.(9)
Overall, the reduction in the provision of short-term funds may now have run its course, since the share of total lending accounted for by short-term exposures picked up slightly in the current quarter in all developing country regions.
Larger market share of Japanese and North American banks
In the second quarter of 2000, the decrease in market share of European banks, with the exception of those headquartered in the United Kingdom, decreased (Table 6). French banks reported a cutback in contractual claims on all groups of developing countries. German banks reported a larger share in Europe and reduced their lending to offshore centres. UK banks accounted for a greater proportion of exposures to the Middle East. The uptick in Japanese market share is based on an absolute $109 billion increase in net lending mainly to European private sector borrowers and investment in US government, agency and corporate bonds and could mean a tentative resumption of international financing by Japanese banks following several years of retrenchment.
Slight fall in net risk exposure(10) to developing countries
Banks' net risk exposure to developing countries declined somewhat from $805 billion to $783 billion in the second quarter of 2000. This decline exceeded that in contractual claims by 2 percentage points and is indicative of a slightly higher share of lending to developing countries being covered by guarantees from elsewhere.
Banks' net country risk exposure is shown as a memorandum item in the last column of the regional Tables 1-5. The table on the next page shows how these data are derived from contractual claims. Claims which have been guaranteed by residents of other countries are subtracted (outward risk reallocation) and guarantees provided by residents of the specified country for reporting banks' claims outstanding elsewhere are added (inward risk reallocation).(11) For example, consider a $100 million claim on the US branch of a bank headquartered in Japan, which is reported as a contractual claim on the US. In reallocating this claim in accordance with the "ultimate risk" principle, the bank holding this claim would report an outward risk transfer of $100 million from the US (reduction of claims) and an equivalent $100 million inward risk transfer to Japan (increase of claims). Some reporting countries do not provide separate data on outward and inward risk reallocations, but only net risk transfer data. These are added to the difference between the "out" and "in" risk transfer data to arrive at the "net risk transfer" column in the table. Net risk exposure (ie "ultimate risk") is then calculated as contractual claims plus ne t risk transfers.
In Asia as a whole, net risk exposure is 92% of reported contractual claims.(12) As can be seen from the table, residents of Taiwan guarantee about $5.4 billion of lending to residents of other countries, while only $2.7 billion of lending to Taiwan residents is guaranteed by residents of other countries. The exceptional 112% ratio of exposure to contractual lending can be seen as related to the global activities of the technology companies resident in Taiwan.
1The statistics are available on the BIS website (www.bis.org/publ/index.htm) and they will be reproduced in the statistical annex of the BIS Quarterly Review: International Banking and Financial Market Developments, to be released on 27 November 2000. The BIS international banking data are also included in the quarterly release of the joint BIS-IMF-OECD-World Bank statistics on external debt (www.bis.org/publ/r_debt.htm).
2 Also known as claims on the "immediate borrower". These data cover the worldwide consolidated on-balance sheet international financial claims reported mainly to supervisory authorities by head offices of banks in 20 major financial centres - see the explanatory notes on page 29. With inter-office claims netted out, the resulting aggregates are considerably smaller for developed countries and offshore centres than those reported in the locational statistics for the same period. Consolidation also provides better identification of the end users of banks' contractual lending.
3The euro and the yen ended the quarter very close to where they had started out, so that valuation effects on the stock of outstanding claims were minimal.
4Excluding the increase due to inclusion of Portugese banks' data at end-1999.
5 See the June and August 2000 issues of the BIS Quarterly Review.
6The instrument breakdown is known from the BIS locational banking statistics.
7Exposure to Asia may be overstated in the current quarter due to provisional data reported vis-à-vis Macau.
8 The short-term debt reported in the BIS statistics provides a timely indicator of the liquidity risk of external bank borrowing. It includes trade credit provided by banks, and it is compiled on the basis of remaining maturity, covering both original short-term debt and long-term debt maturing within the next 12 months. Moreover, the one to two year maturity bracket provides a measure of the contribution of maturing long-term debt to overall repayment needs. By monitoring these data over time, one can ascertain whether borrowers in a country are increasingly relying on short-term financing. For an analysis of the implications of a build-up of short-term financing see, for instance, the Financial Stability Forum: Report of the Working Group on Capital Flows, Basel, April 2000.