BIS consolidated banking statistics for the first quarter of 2002
The consolidated banking statistics released by the BIS today1 show a sharp decline in Japanese banks' international positions during the first quarter of 2002. This effectively reversed the gradual expansion in Japanese banks' foreign assets following the recapitalisation of the banking system in early 1999. European banks continued to expand their claims. Therefore, despite the contraction in Japanese banks' claims, foreign claims of banks in the BIS reporting area remained more or less unchanged between end-December 2001 and end-March 2002, at $11.5 trillion.2
In Argentina, the abandonment of the currency board and subsequent "peso-isation" of the banking system contributed to a severe contraction of banks' foreign claims during the first quarter of 2002. Nevertheless, the crisis in Argentina appeared to have few immediate consequences for international banking activity in other emerging markets.
Retrenchment of Japanese banks
Japanese banks sharply reduced their international positions in the first quarter of 2002. Their foreign claims declined by $150 billion between end-December and end-March, to $1 trillion on a contractual basis (Graph 1). Cross-border claims and local claims in foreign currencies (ie international claims) accounted for most of the decline, falling by $130 billion, while local claims in local currencies contracted by $20 billion.
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Japanese banks had gradually increased their foreign assets following the recapitalisation of the banking system in early 1999, but by end-March 2002 their foreign claims had fallen back to 1999 levels. Japanese banks' share of all contractual foreign claims booked by banks in the BIS reporting area fell to 9% at end-March from its recent peak of 11% at end-June 2001.
The decline in Japanese banks' foreign assets during the first quarter of 2002 was driven by three developments. First, whereas Japanese banks had purchased European and US government and agency securities in the second half of 2001 in anticipation of a decline in interest rates, in the first quarter of 2002 they reduced their international claims on the public sector. Sales of US government and agency securities also contributed to the contraction in Japanese banks' local claims in local currencies, the bulk of which are booked by their US subsidiaries. Second, banks unwound some international positions before the end of their fiscal year (at end-March). This had a particularly large impact on their cross-border interbank lending activities. Finally, the restructuring of some Japanese institutional investment funds reduced Japanese banks' claims on several offshore financial centres. In the first quarter of 2002, some institutional investors closed partnerships located abroad and transferred the accounts to Japan. Given that these partnerships were held in bank trust accounts, their closure resulted in a large fall in Japanese banks' international claims on the non-bank private sector.
As a result of these developments, there was a noticeable change in the regional distribution of Japanese banks' foreign claims. Claims on the United States, which had been trending upwards since 2000, levelled off at 44% of foreign claims on an ultimate risk basis. Claims on offshore financial centres fell to 13% of foreign claims at end-March 2002 from 15% at end-December 2001. By contrast, the share of claims on developing countries, which had been declining since 1997, increased by nearly 1 percentage point during the first quarter to 7% of foreign claims on an ultimate risk basis (although Japanese banks' claims on developing countries still fell slightly in dollar terms). Three quarters of the $69 billion outstanding stock of Japanese banks' foreign claims on developing countries were on economies in the Asia-Pacific region.
The retrenchment of Japanese banks was offset by the continued expansion of European banks. French, UK, Dutch, Belgian and Swiss banks all increased their foreign claims, mainly on the euro area and the United States. A change in Germany's reporting practices - positions are now reported on a fully consolidated basis rather than a partially consolidated basis - contributed to a decline in German banks' claims during the first quarter of 2002. Nevertheless, German banks remained by far the largest international bank creditors, accounting for 18% of foreign claims booked by banks in the BIS reporting area at end-March.
The large decline in short-term claims evident in the fourth quarter of 2001 was partially reversed in the first quarter of 2002. Claims with a remaining maturity of one year or less increased to 42% of international claims on US borrowers at end-March, from 41% at end-December 2001, and to 59% of claims on European borrowers, from 57%. Whereas in the United States the rising share of short-term claims in international claims reflected a decline in longer-term claims (including equities), in Europe it mainly reflected new short-term lending. Increases in short-term claims were accompanied by a shift in the sectoral distribution of claims towards the non-bank private sector. In the United States, international claims on the non-bank private sector increased slightly to 58%, and in Europe to a record high of 31%.
Claims on Argentina fall by one third
International banking activity in emerging markets was overshadowed by the crisis in Argentina. Claims on Argentina contracted by approximately one third between end-December 2001 and end-March 2002, dragging down aggregate figures for emerging markets. While claims on Brazil and a few other emerging markets also fell, the crisis in Argentina appeared to have few immediate consequences for banking activity in other emerging markets during the first quarter. In general, banks maintained their international positions.
Banks' foreign claims on Argentina declined by $24 billion during the first quarter of 2002, to $50 billion (Graph 2). International claims contracted especially sharply, by $20 billion to $35 billion. This contraction reflects several factors. First, some banks wrote off a significant proportion of their exposure to Argentina following the government's default and the abandonment of the currency board. Second, in January 2002 the Argentine government decreed the conversion of locally booked US dollar claims on residents into Argentine pesos at an exchange rate of 1 peso per dollar (and of locally booked US dollar liabilities to residents into Argentine pesos at an exchange rate of 1.4 pesos per dollar). Consequently, local claims in foreign currencies, which in the BIS statistics are included with international claims, were reclassified as local claims in local currencies. This decree is estimated to have affected at least one quarter of foreign claims on Argentina outstanding at the end of 2001. The subsequent depreciation of the peso reduced the dollar value of these claims to a fraction of their pre-decree value. Third, banks continued to cut back their exposure to Argentina in response to the crisis there. Foreign claims on an ultimate risk basis fell to 90% of contractual claims on Argentina at end-March from 92% at end-December.
During the first quarter of 2002, the crisis in Argentina seems not to have had an adverse impact on international banking activity elsewhere in Latin America. After Argentina, Brazil saw the largest contraction, with foreign claims declining by $8 billion between
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end-December 2001 and end-March 2002, to $135 billion. Real-denominated claims on Brazilian residents accounted for most of the contraction. Notwithstanding this decline, in the first quarter at least, reporting banks' experience in Argentina did not appear to lead to a significant re-evaluation of their current business activities in Brazil. At end-March, foreign banks' real-denominated claims on Brazilian residents exceeded their real-denominated liabilities by 56%, unchanged from end-December.3 While the difference was funded through dollar borrowing abroad, a substantial proportion of these dollar liabilities were invested in real-denominated government debt indexed to the exchange rate and so were effectively hedged. International claims on Brazilian banks and the public sector remained more or less unchanged, suggesting that banks were not unduly concerned about country risk. International claims on the non-bank private sector fell, with claims guaranteed by foreign corporations and other non-residents accounting for all of the decline. In contrast to Argentina, claims on Brazil on an ultimate risk basis rose to 99% of contractual foreign claims in the first quarter.
Turning to other regions, in Africa and the Middle East banks extended the maturity of their international positions. Claims with a maturity of one year or less declined by $4 billion to 50% of international claims from 53%. This decline was fully offset by a rise in claims with a maturity of over one year, leaving outstanding foreign claims on the region unchanged at $143 billion on a contractual basis. The sectoral distribution of claims was also broadly unchanged. French banks remained the largest bank creditors, accounting for 21% of foreign claims on the region, while in the year to March 2002 UK banks increased their market share by 1 percentage point, to 19%.
In Asia, short-term claims continued to increase as a percentage of international claims. Claims with a maturity of one year or less rose to 48% of international claims at end-March 2002 from 46% at end-December 2001, boosting outstanding foreign claims on the region slightly to $387 billion on a contractual basis. Lending to the public sector and non-bank private sector increased short-term claims on Korea to 63% from 58%. In Taiwan, China, interbank activity led to a 3 percentage point rise in short-term claims, to 70% of international claims.
1 A second set of BIS international banking statistics - the locational statistics - will be released on 9 September 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 plus their foreign affiliates' local claims on residents. "International claims" are defined as reporting banks' cross-border claims plus their foreign affiliates' local claims on residents denominated in foreign currencies.
3 The United States includes local claims in foreign currencies indistinguishably with local claims in local currencies. Therefore, when comparing local claims in local currencies to local liabilities in local currencies, US data are excluded.