Int'l banks ignored forewarning

Int'l banks ignored forewarning

ZURICH (Reuters): International banks ignored the warning signs of Southeast Asia's crippling financial crisis during the first half of 1997 and continued to lend money to the region, the Bank for International Settlements (BIS) said yesterday.

"In spite of growing strains in Southeast Asia, overall bank lending to Asian developing countries showed no evidence of abating in the first half of 1997," BIS said in its semi-annual report on international bank lending.

Short-term loans dominated credit to Asian countries during that period and by mid-year South Korea was due to have paid back $70 billion between then and mid-1998, said the BIS, banker to the world's central banks.

Thailand was due to have repaid $46 billion during the year up to mid-1998, the BIS said in its semi-annual report.

Both of the former Asian "Tiger economies" have been hard hit by a financial crisis which has sent their currencies and share prices tumbling.

In the case of Korea, the world's 11th-largest economy, international banks last week rolled over billions of dollars worth of debt due by Dec. 31 to avoid widespread default.

The BIS said lending by global banks to South Korea, by far the largest debtor of any emerging country, rose by $4.9 billion to a total outstanding amount of $103.4 billion by mid-1997.

The International Monetary Fund came to Korea's rescue in December with a record $60 billion bail-out package, but this was not enough to stave off a worsening cash crunch as payments on short-term loans fell due at year-end.

New lending to Asian countries rose by $32.0 billion in the first half of the year to $389.4 billion with an acceleration in lending to India, Malaysia and Taiwan, the BIS said.

But although lending to South Korea, Thailand and Indonesia rose, the rate of growth slowed dramatically. The BIS said there was a drying up of funds to Malaysia, Taiwan and Thailand after the first major attack on the Thai baht in May.

Short-term borrowing was also the culprit behind Latin America's debt crisis in the early 1980s and Mexico's financial crisis in late 1994.

But Latin American borrowers are now relying less on short- term loans, partially due to the non-renewal of maturing debt and efforts to diversify funding sources, such as securities issues, the BIS said.

Short-term loans in Latin America accounted for 52.3 percent of total loans of $251.1 billion by the middle of 1997, down from 53.7 percent at end-1996.

Short-term lending to Eastern Europe also rose during the first half of 1997, with the share up to 50.8 percent of outstanding loans of $116.9 billion from 44.2 percent end-1996.

Overall, new lending by international banks to developing countries gathered pace in the first half of 1997, rising by $93.3 billion to a total outstanding amount of $1.05 trillion.

European banks were again the most aggressive lenders to South Korea and Asia with their share of lending to South Korea rising to 35.1 percent from 30.5 percent mid-1996.

Japan's beleaguered banks, still the largest individual group of creditors to South Korea, cut their exposure in the same period with their share of South Korea's debt falling to 22.9 percent from 24.3 percent.

The BIS said the exposure of Japanese banks to Southeast Asia, especially Thailand, is significantly less than their share of overall lending because a large part of the loans were to local subsidiaries of Japanese corporations.

European banks, which overtook Japanese banks as the main lenders to Asia in the second half of 1995, strengthened their position with their share of lending to Asia rising to 43.3 percent by mid-1997 from 40.4 percent by mid-1996.

Japanese banks, which have been retreating internationally, accounted for just 31.8 percent of lending to Asia in mid-1997, down from 34.2 percent mid-1996.

The European advance in Asia has been led by German and French banks, which had a share of 12.1 percent and 10.4 percent respectively of outstanding Asian bank loans of $389.4 billion.

Unlike British banks, whose lending was spread throughout Asia, lending by German and French banks was concentrated.

"Thus, more than half of the increase in the Asian exposure of German banks was accounted for by Malaysia and China, while in the case of French banks a similar proportion was directed to South Korea," BIS said.

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