BIS consolidated banking statistics

The BIS is today releasing consolidated banking statistics for end-June 2002. These statistics provide an insight into the nature and extent of banks' foreign exposures, as well as supplementary information about countries' external indebtedness. The first section of this press release highlights significant trends and structural breaks. The explanatory notes on pages 6 to 8 define the terms used to present the statistics. Statistical tables follow the explanatory notes.

Claims on the non-bank private sector continue to increase

Following several quarters of weak activity, international banking activity began to pick up in the second quarter of 2002. On an unadjusted basis, foreign claims of banks in the BIS reporting area increased by 8% between end-March and end-June 2002, to $12.4 trillion. The quarterly increase in claims was inflated by bank reorganisations and currency movements. In particular, the appreciation of the euro, yen and other major currencies against the US dollar resulted in substantial increases in the US dollar value of claims denominated in these currencies. If adjusted for reorganisations and currency movements, foreign claims increased by an estimated 1½% over the period.

The sectoral distribution of international claims shows that banks continued to increase their exposure to corporations and other non-bank private sector borrowers. Claims on the non-bank private sector accounted for 40.7% of international claims at end-June 2002, up from 39.8% a year earlier (Graph 1). Over the same period, claims on banks fell to 45.2% from 46.6%. The sectoral shift was especially pronounced in offshore financial centres, where claims on the non-bank private sector rose to 69.1% of international claims at end-June 2002 from 65.4% a year earlier and claims on banks fell commensurately.

European banks further strengthened their position as the largest creditors in the international banking market. Swiss banks replaced Japanese banks as the third largest group of creditors, after German banks, while French banks' foreign claims are nearing those of Japanese banks. Swiss banks' share of the outstanding stock of reporting banks' foreign claims increased to 9.8% at end-June 2002 from 9.1% a year earlier, and French banks' share rose to 8.5% from 7.3% over the same period. Belgian banks' claims also steadily expanded, rising to 4.4% of all banks' foreign claims at end-June 2002 from 3.8% a year earlier. Japanese banks' share again decreased, owing principally to the transfer of some foreign assets to a related securities firm and a scaling-back of their US subsidiaries' interbank business. Between end-June 2001 and end-June 2002, dollar-denominated claims on US residents booked by US subsidiaries of Japanese banks fell by nearly 40% to $104 billion. As a result, local claims now account for only 16.7% of Japanese banks' foreign claims, compared with 20.3% a year earlier.

Reporting banks' claims on the euro area increased to 33.2% of foreign claims on an ultimate risk basis at end-June 2002 from 31.5% at end-March. Claims on Germany increased the most, by ½ percentage point to 9%. Claims on Germany were boosted by the relocation of a large Pfandbrief bank from Germany to Ireland, which resulted in claims on German residents previously considered to be domestic claims (and so excluded from the BIS consolidated banking statistics) being reclassified as foreign claims (and included in the statistics). Claims on Japan continued to decline, falling to 4.8%, while claims on the United States remained more or less unchanged at 22.9% of reporting banks' outstanding foreign claims on an ultimate risk basis.

Notably, claims on Japan on a contractual basis exceeded claims on an ultimate risk basis for the first time in recent years: the ratio of ultimate risk to contractual claims fell to 99.3% at end-June 2002 from 102.6% a year earlier. Over the past year, claims on Japanese banks' branches abroad have declined and at the same time creditors have sought foreign guarantees for their claims on Japanese residents, resulting in a larger fall in claims on Japan on an ultimate risk basis than on a contractual basis. By contrast, the ratio of ultimate risk to contractual claims on the United States continued to trend upwards, reaching 99.8% at end-June 2002 against 95.5% a year earlier. The increase in this ratio was driven largely by a significant drop in the share of Swiss banks' claims on US residents guaranteed by firms abroad.

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Emerging markets: Asia borrows short-term while Europe borrows long-term

Turning to emerging markets, banks further reduced their exposure to Latin America while continuing to lend to Asia and Europe. Latin America's share of foreign claims on all developing countries fell to 37.4% at end-June 2002 from 41.6% a year earlier. Subdued lending activity in Latin America contributed to a redistribution of claims away from emerging markets as a group: claims on developing countries on an ultimate risk basis declined to a new low of 10.3% of reporting banks' total foreign claims at end-June 2002 from 11% a year earlier (Graph 1).

Short-term claims on the Asia-Pacific region continued to trend upwards (Graph 2). Claims with a residual maturity of one year or less rose to 50.4% of international claims on the region at end-June 2002 from 45.8% a year earlier. Short-term claims on Korea rose by even more over this period, to 64.1% from 57.3%, owing to a pickup in lending to banks. Short-term claims on China jumped by 10 percentage points to 49.9% of international claims at end-June 2002. This jump coincided with a decline in the unallocated maturity portion of international claims and so probably does not reflect an increase in short-term lending.

Emerging Europe continued to benefit from inflows of longer-term funds, leading to a decline in the share of short-term claims in international claims to 40.8% at end-June 2002 from 43.4% a year earlier. This was accompanied by an ongoing shift in the sectoral distribution of claims, with exposures to the non-bank private sector increasing while claims on the banking sector declined. A revaluation of German banks' claims denominated in transferable roubles resulted in a 10% drop in consolidated claims on Russia between end-March and end-June 2002. Claims on Russia had begun to trend upwards in mid-2001 and, after adjusting for the impact of the revaluation, this trend appears to have continued in the second quarter of this year.

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Exposures to Brazil differ across banking systems

In contrast to emerging Asia and Europe, bank claims on Latin America declined further between end-March and end-June 2002. Total foreign claims fell very sharply by 7%.

However, the unadjusted figure exaggerates the decline in claims because the depreciation of the Brazilian real, Mexican peso and other Latin American currencies against the US dollar in the second quarter resulted in large drops in the US dollar value of locally booked claims denominated in local currencies. International claims, most of which are denominated in US dollars and so are less affected by currency movements, fell by a more moderate 2%. International claims on Brazil decreased by 4% or $2.6 billion, similar to the pace of contraction recorded in late 2001 and early 2002. International claims on Argentina also declined, while banks maintained their positions on Mexico.

Brazil is second only to Mexico as the largest emerging market exposure of banks in the BIS reporting area. At end-June 2002, foreign claims on Brazil on an ultimate risk basis totalled $122.6 billion, equal to 9.8% of foreign claims on all developing countries on an ultimate risk basis. Two banking systems - those of the United States and Spain - accounted for 42.6% of all ultimate-risk claims on Brazil at end-June 2002 (Table 1). The next eight largest creditors accounted for a further 47.9% of claims. Banks resident inside the reporting area but headquartered elsewhere, including the offices of Brazilian banks in New York and other banking centres, accounted for 6.9% of claims on Brazil.

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The nature of reporting banks' exposures to Brazil differs considerably across banking systems. At end-June 2002, US banks had the largest international claims on Brazilian residents, followed by German banks. Spanish banks' international claims on Brazil are relatively small; the bulk of their exposure is through local claims, in particular real-denominated claims on Brazilian residents booked by Spanish banks' Brazilian subsidiaries. US, Dutch and UK banks also have large local operations.

A significant proportion of German banks' claims on Brazil is guaranteed by obligors outside Brazil, effectively reducing German banks' exposure to Brazil by $1.1 billion. In contrast, US banks had large claims on borrowers located outside Brazil that were either collateralised by claims on Brazilian residents, such as Brady bonds, or guaranteed by Brazilian residents, and so US banks' claims on Brazil on an ultimate risk basis exceeded their claims on a contractual basis by $1.9 billion. US banks also had large undisbursed credit commitments to Brazilian residents. Relative to their total contractual claims, Swiss banks make the most use of cross-border guarantees; risk transfers reduced Swiss banks' contractual claims on Brazil by approximately 25%. Spanish banks' risk transfers are relatively small because cross-border guarantees are less common for claims that are funded and booked locally. Note that the BIS consolidated banking statistics do not include derivatives, which can significantly alter credit exposures.¹

Foreign claims on Brazil on an ultimate risk basis - international claims plus local claims in local currency plus net risk transfers - account for only 1.5% of Spanish banks' total assets (ie, foreign plus domestic claims) and 0.5% of those of US banks. Relative to their total worldwide assets, claims on Brazil are smallest for Japanese banks, at less than 0.1%.