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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