Cross-border bank claims rise in third quarter of 2021, says BIS

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Geneva, 21 Feb (Kanaga Raja) – Cross-border bank claims increased by $228 billion in the third quarter of 2021, pushing their year-on-year (yoy) growth rate to 3%, the Bank for International Settlements (BIS) has reported.

In its latest statistics released recently on international banking activity at end-September 2021, BIS said claims on non-bank financial institutions accounted for more than half of the quarterly increase.

BIS said that non-US banks increased their US dollar funding to their affiliates in the United States and, in turn, expanded their claims on the US official sector through greater holdings of US Treasury securities and reserves at the Federal Reserve.

BIS said claims on emerging market and developing economies (EMDEs) fell modestly in the third quarter, driven by a contraction in claims on China, while claims on Latin America and Africa and the Middle East grew.

BIS also said its global liquidity indicators show that financing through the bond market now accounts for as much dollar credit to EMDEs as lending from internationally active banks (see below).

According to the Basel-based central bank for the world’s central banks, its locational banking statistics show that internationally active banks’ cross-border claims rose by $228 billion (to $35 trillion) during the third quarter of 2021.

On a year-on-year (yoy) basis, claims on all regions rose by about 3%. Over half of the quarterly increase reflected greater claims on non-bank financial institutions (NBFIs), which went up by $119 billion, said BIS.

Claims on unrelated banks and non-financials also expanded, by $71 billion and $55 billion, respectively, while inter-office claims fell by $4 billion.

However, BIS said these figures mask large differences across counter-party countries and the currencies in which the claims are denominated.

Claims in euros fell by $76 billion overall, due to lower inter-office claims among major European countries, while euro claims on other sectors expanded, mostly on NBFIs and unrelated banks.

In contrast, claims denominated in US dollars jumped by $293 billion, reflecting greater inter-office positions ($128 billion) and lending to non-financials ($83 billion) and NBFIs ($74 billion).

Most of the increase in claims was on borrowers in the United States (+$268 billion, +9% yoy), said BIS.

Inter-office claims on the United States jumped by $143 billion as non-US banks channeled funds to their affiliates operating in the United States.

BIS observed that the first quarter of 2020 saw similar developments on a larger scale.

Greater inter-office claims on the United States went hand-in-hand with increased claims on the official sector in particular, it said.

BIS said its consolidated banking statistics, which track the globally consolidated positions of banks headquartered in a country, show that non-US banks’ foreign claims on the US official sector grew by $215 billion to reach $2.7 trillion in Q3 2021.

“Claims on the US official sector include claims on the Federal Reserve, notably reserves,” it pointed out.

Claims on the US official sector rose to 36% of non-US banks’ total claims on the United States at end-Q3 2021, up from 31% at end-2019.

Several major banking systems increased their consolidated claims on the US official sector, said BIS.

A similar expansion was observed among US banks: their claims on the official sector reached $4.6 trillion at end- Q3 2021, a full 67% higher than at end-2019.

“These trends have taken place against the backdrop of asset purchases and quantitative easing operations by the Federal Reserve,” said BIS.

FALL IN CROSS-BORDER CLAIMS ON EMDEs

BIS said cross-border bank claims on EMDEs fell slightly in Q3 2021, by $7 billion. On a yoy basis, their growth rate remained positive overall (3%, for all EMDE regions combined), with higher rates of growth vis-a-vis the Asia and Pacific and Africa and the Middle East regions (+5% in both cases).

Yearly growth in lending to Latin America (-4%) and emerging Europe (-1%) remained negative, BIS added.

The quarterly decline in global claims on EMDEs in Q3 2021 was due to reduced lending to borrowers in Asia and the Pacific, BIS explained.

Claims on the region dropped noticeably (-$23 billion), especially vis-a-vis China (-$26 billion), it said.

Banks in Hong Kong SAR and Macao SAR reported the largest reductions in claims on China (-$17 billion), after increasing their claims on the mainland by $46 billion over the previous two quarters.

Elsewhere in the Asian region, claims on Chinese Taipei dropped (-$6 billion) while those on Korea ($5 billion) and India ($4 billion) grew.

On the other hand, claims on Latin America picked up ($12 billion) in Q3 2021, for the first time since Q1 2020, with significant increases vis-a-vis Brazil ($7 billion), Chile ($4 billion) and Colombia ($4 billion).

Banks located in the United States, Luxembourg and Panama were the main lenders to the region, said BIS.

Meanwhile, BIS said claims on Africa and the Middle East continued to rise ($6 billion), although at a slower pace than previously, while those on emerging Europe fell (-$2 billion).

Banks reported greater claims on Eswatini, Liberia and Saudi Arabia (+$2 billion each), but lower claims on South Africa and Qatar (-$2 billion each). For South Africa, this was the 10th consecutive quarterly decline, it added.

Among the emerging European countries, claims on Croatia and Poland fell by a combined $3 billion, said BIS.

GLOBAL LIQUIDITY INDICATORS

Meanwhile, in a box insert to its main report highlighting its global liquidity indicators at end-September 2021, BIS said that in the third quarter of 2021, foreign currency credit in dollars, euros and yen increased modestly, pulling up the respective year-on-year (yoy) growth rates.

[The BIS global liquidity indicators track credit to non-bank borrowers, covering both loans extended by banks and funding from the bond markets, with the main focus on foreign currency credit denominated in three major reserve currencies (the US dollar, euro and Japanese yen) to non-residents, i.e. borrowers outside the respective currency areas.]

Dollar credit to borrowers outside the United States stood at $13.4 trillion at end-Q3, up 6% yoy, said BIS.

Growth in euro credit to borrowers outside the euro area gathered pace compared with previous quarters: the 8% yoy expansion brought the stock to EUR 3.7 trillion ($4.3 trillion), it added.

Meanwhile, yen credit to borrowers outside Japan continued to fall, but at a slightly reduced pace of -6% yoy, bringing the amount outstanding to 46 trillion yen ($0.4 trillion).

Bank loans in dollars and euros rebounded in Q3 2021, while credit from bond markets in the same currencies continued to expand, said BIS.

Bank loans to non-residents jumped in the third quarter, pushing the yoy growth rates in dollar and euro lending to 5% and 2%, respectively.

Over the same period, BIS said bond issuance in dollars and euros grew strongly at 7% and 12% yoy, respectively.

In contrast, it said net bond issuance in yen continued to contract (-2% yoy), though less than bank lending in that currency (-9%).

“As a result of these developments, the share of foreign currency credit provided through bond markets continued to increase in all three currencies,” said BIS.

It noted that for the first time since the start of the pandemic in early 2020, growth in dollar- and euro-denominated foreign currency credit outpaced domestic credit in the respective currency areas.

BIS said after brisk growth in domestic credit in 2020 and 2021, yoy growth fell back to rates prevailing before the pandemic.

Meanwhile, dollar and euro credit to non-residents of these currency areas accelerated, it added.

On the other hand, BIS said yen credit has remained weak by comparison, both to non-residents and residents of Japan.

Foreign currency credit towards EMDEs has continued to hold up. Dollar credit to EMDEs reached $4.2 trillion, while that denominated in euros reached EUR 0.8 trillion, BIS said.

BIS said that for both currencies, this reflects continued expansion vis-a-vis most regions, except for euro credit in Latin America (-4% yoy), with Brazil and Mexico accounting for the largest declines over the past year.

Albeit small, yen-denominated credit to EMDEs continued to decline, reaching 7 trillion yen ($62 billion).

BIS said that EMDEs are approaching a similar reliance on bond markets for dollar funding to that observed for advanced economies.

Bond markets now provide as much dollar credit to EMDEs as internationally active banks do, it added.

The share of debt securities in dollar credit has trended up since the Great Financial Crisis (GFC) to reach 50% in the latest quarter.

An earlier run-up towards 50% ended in 2003, when international bank lending outpaced bond market finance to emerging market economies until the GFC hit.

The trend towards bond financing is shared across EMDE regions. Latin America and the Caribbean rely on bonds the most, with nearly 69% of total dollar credit raised in bond markets, said BIS.

In emerging Europe, 51% of total dollar credit comes from bond markets, with the stock of debt securities reaching a peak of $214 billion in Q3 2021.

In Africa and the Middle East, bond financing has been growing steadily since 2016, pushing its share towards 50% in the latest quarter.

In emerging Asia, bank loans still account for 63% of total dollar credit to the region, said BIS.

However, the bond share and amounts outstanding have been rising consistently, bringing the stock in Q3 2021 to $588 billion (or 37% of total dollar credit), said BIS.

- Third World Network