Foreign banks trimming exposure to emerging economies in 1998<\/p>\n
BASEL, Switzerland (AFP): Foreign banks trimmed their exposure
\nto nearly all emerging economies in the second half of 1998
\nthough the credit squeeze to Asian economies eased, the Bank for
\nInternational Settlements said Sunday.<\/p>\n
Hardly any region was spared from the flight to safety and
\nliquidity following the Russian debt moratorium in August, the
\nlatest BIS report detailing end-1998 banking statistics said.<\/p>\n
"However, contagion during this period was not as severe as
\nthese data suggests," said the BIS.<\/p>\n
"Retrenchment from Asia was halved compared with the first
\nhalf of 1998, confirming evidence from other sources of an easing
\nof financing pressure in the region."<\/p>\n
The credit pullback from Asia (excluding Japan) in the period
\ntotaled US$28 billion, leaving BIS reporting banks with $297.9
\nbillion in outstanding credit to the region.<\/p>\n
That is roughly $80 billion less than at the end of 1997, six
\nmonths after the onset of the Asian financial crisis.<\/p>\n
The eight billion dollar loan decline to South America in the
\nlast six months of 1998 was accounted for by Brazil (to which
\ncredits fell by $12 billion), and offset by new loans elsewhere
\non the continent, the BIS said.<\/p>\n
International banks' fall in credits to Eastern Europe
\namounting to $17 billion reflected developments in Russia, whose
\ndebt moratorium sparked system-wide financial chaos.<\/p>\n
While some African countries appear to have suffered from the
\ngeneral aversion to risk, banking business in the Middle East
\ncontinued to thrive, the report said.<\/p>\n
"These developments add weight to reports of a greater
\nwillingness among lenders to differentiate between emerging
\nmarket borrowers and to provide financing at spreads deemed more
\ncommensurate with risks," the BIS said.<\/p>\n
The main impact from the whittling down of credit to Asia was
\nto further reduce the role of domestic banks in pumping foreign
\nfunds into the local economy, the BIS said.<\/p>\n
Credits to Asian (excluding Japanese) banks out of total
\nlending to Asian entities fell two percentage points to a low of
\n35 percent at year end, with a corresponding rise in lending to
\nthe non-bank private sector.<\/p>\n
Loans to Thai banks, for example, fell to just 22 percent of
\nall Thai borrowings, compared with 53 percent in South Korea.<\/p>\n
The growing predominance of European banks showed no sign of
\nabating, the BIS said.<\/p>\n
Their combined share of emerging market debt rose even a the
\nworst of the crisis hit global markets in the second part of
\n1998, the report said.<\/p>\n
The largest rise was in Eastern Europe, where European banks
\nheld at 1998-year end 85 percent of outstanding foreign loans, up
\nfrom 80 percent in the fist half.<\/p>\n
While the default on Russian treasury bills had a strong
\nimpact on the positions reported by North American banks, the
\nresult was less marked for European banks.<\/p>\n
This is because of the large percentage of officially
\nsupported long-term credits to Russia from German banks.<\/p>\n
German banks' shares of Russian debt rose to 53 percent from
\n41 percent of the total foreign credits to the country in the
\nperiod, "marking sizable valuation losses for other European
\nbanking groups," the BIS said.<\/p>\n
Japanese banks' portfolio of Asian loans reached a 14-year low
\nof 29 percent of total foreign credits to Asia, according to the
\nBIS.<\/p>",
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