Chapter

III International Banking Activity

Author(s):
Donald Mathieson, Eliot Kalter, Maxwell Watson, and G. Kincaid
Published Date:
February 1986
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Measurement of International Banking Flows

The quantity and quality of statistics on international bank lending have improved substantially in recent years. However, with the spread of liberalization and innovation in the international capital markets, the range of financing techniques available to market participants has expanded greatly. These developments, together with the international debt crisis, have contributed to making banks’ financial operations increasingly complex. These factors are affecting not only the way in which markets function, but also the ability of statisticians to measure and interpret the transactions that are taking place.

The description of international banking activity presented in this section is based on data from a number of sources in order to provide as comprehensive an analysis of underlying patterns as possible. Appendix I describes the coverage issues involved, with particular emphasis on differences inherent in data that are drawn from different sources or that represent banking activity on different bases (e.g., residential, consolidated, or by nationality of ownership). However, Table 1 and Chart 1 illustrate the similarity in trends in international banking activity in recent years, as shown by the Fund’s International Banking Statistics and the quarterly data published by the BIS in International Banking Developments.

Appendix I also addresses current measurement problems. These problems result, essentially, from the fact that bank lending flows are derived from changes in stock data (banks’ claims). Changes in these stocks are caused not only by new tending and amortization but by exchange rate movements, write-offs of debt, calling of guarantees, and classification problems (including inconsistent reporting by debtors and creditors). Moreover, banks’ purchases of securities have not been fully included in the geographical analysis of banks’ claims in many countries.

The description of banking activity in this section is based on data that have been corrected for these problems whenever possible, and in particular for exchange rate changes and identified inconsistencies in reporting of data by debtor and creditor sources. Revisions to take account of reporting problems were made to lending data for 12 countries, principally affecting lending to countries in the Western Hemisphere. The downward revision in lending to developing countries as a result of correcting identified reporting problems amounted to about $10 billion in 1983 and $1.5 billion in 1984, mainly owing to changes for Brazil and Mexico.

Overview of Bank Lending and Deposit Taking

Banks’ overall lending increased by $192 billion in 1984, compared with $139 billion in 1983 (Table 4); this corresponded to a rate of growth of 7 percent, up from 5 percent in 1983. However, international bank lending activity was still considerably below that during the early part of the decade. The slight pick-up in activity in 1984 was due to interbank lending, which amounted to $152 billion in 1984, compared with $102 billion in 1983 (Table 23). This corresponded to a rate of growth in interbank lending of 8 percent in 1984, up from 6 percent in 1983. In the first half of 1985, overall bank lending activity decreased to $72 billion in comparison with $98 billion in the same period a year earlier. Furthermore, lending to nonbanks declined to about 13 percent of total lending from over 21 percent in the first half of 1984 (Table 24).

Bank lending to industrial countries rose from $92 billion in 1983 to $116 billion in 1984, although it declined to $56 billion in the first half of 1985 (Table 4). A high proportion of bank lending to industrial countries took the form of interbank flows. Claims on developing countries (excluding seven offshore centers) grew by only $16 billion in 1984 (3 percent) compared with $38 billion in 1983 (7 percent). In the first half of 1985, bank claims on this group of countries increased by only $1 billion, compared with an increase of $4 billion in the first half of 1984.

Total deposit taking from both banks and nonbanks increased from $161 billion in 1983 to $192 billion in 1984. However, deposit taking declined to $72 billion in the first half of 1985 in comparison with $114 billion in the first half of 1984. Growth of deposits of the industrial countries increased from $88 billion in 1983 to $133 billion in 1984, despite a sharp drop in deposit taking from the United States from $32 billion in 1983 to $11 billion in 1984—this deposit taking fell back to $57 billion in the first half of 1985 with banks’ liabilities to the United Stales actually declining by $1 billion. There was a leveling off of the increase in developing countries’ deposits with the international banking system. Deposits from developing countries increased by $23 billion in 1984, compared with $29 billion in 1983, but rose by only $3 billion in the first half of 1985. While depositing by these countries in 1984 reflected to a greater extent than in 1983 increases in official reserves, this pattern was not continued in the first half of 1985.

Table 4.Total Cross-Border Bank Lending and Deposit Taking, 1982–First Half of 19851(In billions of U.S. dollars)
19841985
1982198319841st half2nd half1st half
Lending to2186139192989472
Industrial countries12392116655156
Of which:
United States61383528712
Japan10199109
Developing countries35138164121
Offshore centers42572911197
Other transactors5−16775
Unallocated (nonbanks)6−12−4241862
Memorandum items
Capital-importing developing countries3,738184124
Major borrowers8139361
Non-oil developing countries3,94131194134
Deposit taking from101881611921147872
Industrial countries15088133795457
Of which:
United States107321129−18−1
Japan1512488
Developing countries34292313113
Offshore centers42526191264
Other transactors5410322
Unallocated (nonbanks)668141046
Memorandum items
Capital-importing developing countries3,7382715123
Major borrowers81217611
Non-oil developing countries3,9173223149
Change in net claims on11−2−22−1616
Industrial countries−264−16−13−3−1
Of which:
United States−46623−22513
Japan−57521
Developing countries3479−8−81−2
Offshore centers4−1911−2123
Other transactors5−5−4443
Unallocated (nonbanks)−18−121083−4
Memorandum items
Capital-importing developing countries3,7−11−1011
Major borrowers81−8−3−51
Non-oil developing countries3,924−1−5−844
Note: Owing to rounding, components may not add.Sources: International Monetary Fund, International Financial Statistics (IFS); and Fund staff estimates.

Data on lending and deposit taking are derived from stock data on the reporting countries’ liabilities and assets, excluding changes attributed to exchange rate movements.

As measured by differences in the outstanding liabilities of borrowing countries defined as cross-border interbank accounts by residence of borrowing bank plus international bank credits to nonbanks by residence of borrower.

Excluding offshore centers.

Consisting of the Bahamas. Bahrain, Cayman Islands, Hong Kong, the Netherlands Antilles, Panama, and Singapore.

Transactors included in IFS measures for the world, to enhance global symmetry, but excluded from IFS measures for “All Countries.” The data comprise changes in identified cross-border bank accounts of centrally planned economies (excluding Fund members), and of international organizations.

Calculated as the difference between the amount that countries report as their banks’ positions with nonresident banks in their monetary statistics and the amounts that banks in major financial centers report as their positions with nonbanks in each country.

Consisting of all developing countries except the eight Middle Eastern oil exporters (Islamic Republic of Iran, Iraq, Kuwail, Libyan Arab Jamahiriya, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) for which external debt statistics are not available or are small in relation to external assets.

Consisting of Argentina, Brazil, Indonesia, Korea, Mexico, the Philippines, and Venezuela.

Consisting of all developing countries except the eight Middle Eastern oil exporters (listed in footnote 7 above), Algeria, Indonesia, Nigeria, and Venezuela.

As measured by differences in the outstanding assets of depositing countries, defined as cross-border interbank accounts by residence of lending bank plus international bank deposits of nonbanks by residence of depositor.

Lending lo, minus deposit taking from.

Note: Owing to rounding, components may not add.Sources: International Monetary Fund, International Financial Statistics (IFS); and Fund staff estimates.

Data on lending and deposit taking are derived from stock data on the reporting countries’ liabilities and assets, excluding changes attributed to exchange rate movements.

As measured by differences in the outstanding liabilities of borrowing countries defined as cross-border interbank accounts by residence of borrowing bank plus international bank credits to nonbanks by residence of borrower.

Excluding offshore centers.

Consisting of the Bahamas. Bahrain, Cayman Islands, Hong Kong, the Netherlands Antilles, Panama, and Singapore.

Transactors included in IFS measures for the world, to enhance global symmetry, but excluded from IFS measures for “All Countries.” The data comprise changes in identified cross-border bank accounts of centrally planned economies (excluding Fund members), and of international organizations.

Calculated as the difference between the amount that countries report as their banks’ positions with nonresident banks in their monetary statistics and the amounts that banks in major financial centers report as their positions with nonbanks in each country.

Consisting of all developing countries except the eight Middle Eastern oil exporters (Islamic Republic of Iran, Iraq, Kuwail, Libyan Arab Jamahiriya, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) for which external debt statistics are not available or are small in relation to external assets.

Consisting of Argentina, Brazil, Indonesia, Korea, Mexico, the Philippines, and Venezuela.

Consisting of all developing countries except the eight Middle Eastern oil exporters (listed in footnote 7 above), Algeria, Indonesia, Nigeria, and Venezuela.

As measured by differences in the outstanding assets of depositing countries, defined as cross-border interbank accounts by residence of lending bank plus international bank deposits of nonbanks by residence of depositor.

Lending lo, minus deposit taking from.

Industrial Countries as International Borrowers and Depositors of Funds

The growth of bank lending to industrial countries rose to 7 percent in 1984 from 6 percent in 1983. Growth in interbank claims on industrial countries was somewhat faster than the total, whereas there was a slowing to 3 percent in lending to nonbanks (from 5 percent in 1983). The major destination of bank lending was the United States, with flows amounting to $35 billion. Lending totaled almost $30 billion to the United Kingdom, $19 billion to Japan, $12 billion to Belgium-Luxembourg, and $7 billion to France. Nonbanks in the United States took in $11 billion of bank lending, while the rest of the industrial countries, in aggregate, experienced a decline in claims on their nonbanks of over $4 billion, of which $3 billion represented a decline in claims on nonbanks in Japan (Table 24). Industrial countries’ recourse to bank lending slowed somewhat in the first half of 1985 to $56 billion (in comparison with $65 billion in the first half of 1984), most of which took the form of interbank lending.

The slowdown of bank lending to nonbanks in industrial countries in 1984 and the first half of 1985 may be attributable to three factors: the strong liquidity position of nonbanks in a number of industrial countries; the preference on the part of nonbanks for bonds rather than bank finance, reflecting the lower cost of issuing various types of securities versus the cost of bank finance; and banks’ preference for feeearning—rather than asset-creating—business.

The growth in interbank lending occurred despite some factors which have operated to slow interbank activity. These factors include the impact of higher capital asset ratio requirements on U.S. banks and efforts to raise capital asset ratios in many of the industrial countries; the greater use that banks are making of other instruments (such as futures, options, and swaps) for managing interest and exchange rate exposures; and a more critical attitude to the liquidity of interbank deposits.

However, in other ways the liberalization of financial markets may have added to interbank activity. Bank head offices in some major financial centers may have been transferring funds to their branches and subsidiaries abroad to fund larger trading portfolios of securities associated with the liberalization of security markets in the countries where the branches or subsidiaries operate. A significant proportion of interbank lending appears to reflect the increasing integration of the Japanese market into the international financial system, including the effect that relaxation of limits has had on Japanese banks’ funding through swaps. Also, the relatively high level of interbank lending could be related to dealings in the foreign exchange market, which has witnessed large fluctuations. Banks’ covering of forward exchange operations in the spot market can result in an increase in interbank positions when the banks deposit the purchased currencies in banks abroad.

In addition, the rapid growth of the ECU market has contributed to interbank lending. Borrowing denominated in ECU has risen from less than 2 percent of total international borrowing in 1983, to almost 5 percent in the first half of 1985 (Table 5). Because banks’ ECU assets exceed their nonbank ECU deposits, banks have borrowed component currencies of the ECU on a large scale in the interbank market. Alternatively, they have used foreign exchange transactions to generate ECU funds. Interbank activity was also required, insofar as ECU borrowing and depositing by nonbanks occurred in different countries.

Finally, interbank lending has reflected the particularly strong ability of U.S. and Swiss banks to attract deposits from nonbanks that exceeded their loans to nonbanks. Moreover, some tiering in the interbank market may have led to an increased recycling of deposits received by highly regarded banks, in addition to flows reflecting the difficulties of a major international bank.

Developments in new long-term external bank credit commitments17 provide some indication of recent capital market conditions to different borrowers. Total commitments amounted to about $67 billion in 1984, or about the same amount as in 1983, and about $58 billion at an annual rate in the first half of 1985. New commitments to industrial countries rose slightly to $30 billion in 1984 from $28 billion in 1983. But they remained considerably below the 1982 level of $52 billion, again reflecting borrowers’ reliance on the security markets to obtain external financing. New commitments to industrial countries picked up to an annual rate of about $33 billion in the first half of 1985 (Tables 29 and 30).

Table 5.International Borrowing Operations in ECUs, 1983–First Half of 1985(In billions of ECUs)
198319841st half 1985
By instrument
Bonds2.493.924.95
Of which: Floating rate notes0.570.71
Syndicated loans0.722.162.66
Other facilities0.26
Total3.216.087.87
By borrower
Italy0.941.682.70
France0.600.570.80
EEC institutions0.621.000.47
Other EEC countries0.230.481.24
Other borrowers0.822.352.66
Total3.216.087.87
Memorandum item:
ECU as a percent of total borrowing11.72.54.9
Source: Organization for Economic Cooperation and Development, Financial Market Trends.

At constant (end-1983) exchange rates.

Source: Organization for Economic Cooperation and Development, Financial Market Trends.

At constant (end-1983) exchange rates.

Depositing by industrial countries increased significantly from $88 billion in 1983 to $133 billion in 1984 (Table 4). Interbank deposits rose from $62 billion in 1983 to $121 billion in 1984, while bank deposit taking from nonbanks in the industrial countries fell from $26 billion in 1983 to $12 billion in 1984. Industrial countries’ depositing abroad moderated in the first half of 1985, amounting to $57 billion in comparison with $79 billion in the first half of 1984.

Industrial countries as a group made net deposits of $16 billion in new funds in 1984, after taking a net of $4 billion in new funds in 1983.18 Within the industrial group, the United States was a net user of international funds, with a net inflow of $23 billion. This contrasts with its historical role as the major supplier of funds. Net financing from the international banking system amounted to more than one quarter of the U.S. current account deficit in 1984. Interestingly, the United Kingdom and Japan were also net takers of funds, drawing $10 billion and $7 billion, respectively. The Japanese net financing from the international banking system occurred at a time that it recorded a current account surplus of $36 billion. This net financing reflects, among other factors, investment by Japanese residents in international bond markets. In contrast, Switzerland (including trustee accounts) was a net placer of funds in the amount of almost $28 billion in 1984. Industrial countries were net depositors of funds in the first half of 1985, with a net outflow of less than $1 billion. The United States continued to be a net taker of funds, with a total of $13 billion.

Developing Countries as International Borrowers and Depositors of Funds

Overview

Bank lending to developing countries continued to slow in 1984, increasing by only $16 billion, compared with $38 billion in 1983. This increase corresponded to a growth of bank claims of 3 percent in 1984, in comparison with 7 percent in 1983. Bank lending to nonbanks in developing countries declined from $22 billion in 1983 to $5 billion in 1984. The growth in bank claims on developing countries continued to decelerate in the first half of 1985, with bank lending totaling only $1 billion in comparison with $4 billion in the first half of 1984.

The sharp decline in bank lending to developing countries was associated with those countries’ lower current account deficits in 1984–85 and a reluctance on the part of international banks to lend to many developing countries—especially those experiencing payments difficulties. About 60 percent of the growth in banks’ claims on developing countries in 1984 took the form of concerted lending to Latin American countries in conjunction with bank debt restructurings and Fund-supported programs. Disbursements under concerted lending packages totaled over $10.2 billion in 1984, with Brazil and Mexico accounting for almost $9.5 billion of this amount.

The combined deficit of capital-importing developing countries (i.e., all developing countries except the eight major oil exporters in the Middle East region) fell from $60 billion in 1983 to $38 billion in 1984—a deficit equivalent to about 7 percent of their exports of goods and services—the lowest figure since 1967. The financing requirement in 1984 was covered by nondebt-creating flows (grants and direct investment) and by long-term borrowing from official creditors. The improved external financial position of the developing countries allowed them to accumulate $22 billion in reserves in 1984, following an accumulation of $10 billion in 1983.

Table 6.New Publicized Long-Term External Bank Credit Commitments to Developing Countries, 1979–First Half of 1985(In billions of U.S. dollars)
19841985
1979119801198119821983198421st half2nd half21st half3
Developing countries50.938.348.144.634.931.018.013.09.3
Capital-importing49.837.847.042.632.629.917.612.38.7
Africa4.82.64.12.72.70.50.30.21.1
Spontaneous lending44.82.64.12.72.70.50.30.21.0
Concerted lending40.1
Asia11.09.212.812.610.410.24.65.62.9
Spontaneous lending411.09.212.812.610.49.34.64.72.9
Concerted lending40.90.9
Europe7.84.94.73.73.53.41.22.22.3
Spontaneous lending47.84.94.73.72.93.41.22.22.3
Concerted lending40.6
Middle East0.20.70.20.60.70.40.10.3
Western Hemisphere26.020.425.223.015.315.411.44.02.4
Spontaneous lending426.020.425.223.02.00.60.30.30.2
Concerted lending413.3514.811.13.72.2
Sources: Organization for Economic Cooperation and Development, Financial Statistics Monthly; and Fund staff estimates.

Includes only Eurocredit commitments.

Includes agreements in principle with Argentina and the Philippines, and excludes the short-term trade deposit facility for Argentina of $0.5 billion.

Includes agreements in principle with Chile and Colombia.

Concerted lending refers to bank credit commitments obtained during 1983–85 and coordinated by a bank advisory committee (i.e., Argentina, Brazil. Chile, Colombia, Ecuador, Côte d’Ivoire, Mexico, Panama, Peru, the Philippines. Uruguay, and Yugoslavia).

Excludes the extension of a bridging loan of $1.3 billion to Argentina.

Sources: Organization for Economic Cooperation and Development, Financial Statistics Monthly; and Fund staff estimates.

Includes only Eurocredit commitments.

Includes agreements in principle with Argentina and the Philippines, and excludes the short-term trade deposit facility for Argentina of $0.5 billion.

Includes agreements in principle with Chile and Colombia.

Concerted lending refers to bank credit commitments obtained during 1983–85 and coordinated by a bank advisory committee (i.e., Argentina, Brazil. Chile, Colombia, Ecuador, Côte d’Ivoire, Mexico, Panama, Peru, the Philippines. Uruguay, and Yugoslavia).

Excludes the extension of a bridging loan of $1.3 billion to Argentina.

Bank lending to most developing countries in Asia and Europe has remained spontaneous, though, in some cases, more limited in volume. Some countries, again particularly in Asia and Europe, were able to make greater recourse to the securities market, notably issues of floating rate notes and, to a lesser degree, note issuance facilities. Some countries in Eastern Europe were able to regain substantial access to syndicated lending in 1984, following a period when their access to spontaneous financing was limited. However, for most developing countries, access to spontaneous medium-term bank financing was even more limited in 1984 than in the previous year.

Almost two thirds of bank lending to developing countries in 1984 took place through the interbank market, compared with one third during 1982–83. This higher share was related, in part, to the transfer of claims on nonbanks to the monetary authorities in the context of debt restructurings.

New bank commitments to developing countries declined to $31 billion in 1984, from $35 billion in 1983, and $45 billion in 1982 (Table 6 and Chart 2). Spontaneous commitments continued to fall, a decline which was only partly offset by concerted loans. Spontaneous commitments fell from an average of $45 billion during 1979–82, to $21 billion in 1983, and to $15 billion in 1984 (Table 6), Concerted commitments, mostly to a limited number of Latin American countries, totaled $14 billion in 1983 and $16.2 billion19 in 1984. All regional groupings of developing countries recorded virtually unchanged, or lower bank commitments in 1984, with countries in Africa and the Middle East reporting the greatest reductions. There was a large increase in new commitments to some non-Fund member countries with centrally planned economies, notably the Union of Soviet Socialist Republics and the German Democratic Republic, in 1984, but new commitments remained small in absolute terms.

New bank credit commitments to developing countries slowed further to $9 billion in the first half of 1985, compared with $18 billion in the first half of 1984. Commitments to developing countries in the Western Hemisphere dropped to $2.4 billion—virtually all was concerted lending. In contrast, bank credit commitments to developing countries in Europe rose to $2.3 billion, compared with $1,2 billion in the first half of 1984. Credit commitments to countries in Africa rose in the first half of 1985, reflecting mainly a large bank commitment to South Africa. New commitments to non-Fund member countries with centrally planned economies continued to rise and, on an annual basis, were 25 percent higher than during 1984.

Data supplied by the BIS sheds light on undisbursed credit commitments of countries in the BIS reporting area to developing countries (Tables 32 and 33). These unused lines of credit declined from almost $82 billion at the end of 1981, to $75 billion at the end of 1983, to $68 billion at the end of 1984, and to $66 billion as of June 1985. The $9 billion decline in unused lines of credit to developing countries during 1984 and the first half of 1985 was mostly accounted for by a $6.4 billion cutback to Western Hemisphere countries; in contrast, developing countries in Europe saw a slight increase in their unused credit lines. (In light of changes in coverage in this data, direct comparisons between end-year figures from 1982 to the first half of 1985 should be interpreted with caution.)

Deposit taking of the international banking system from the developing countries was $23 billion in 1984, or $6 billion less than in 1983. Interbank deposits of developing countries rose by $19 billion in 1984, compared with $5 billion in 1983, reflecting an accumulation of gross official reserves by many of the countries in the group, while deposit taking from nonbanks in developing countries declined from $23 billion in 1983 to $4 billion in 1984, in part as a result of decreased capital flight from developing countries. Banks’ liabilities to these countries increased in the first half of 1985 by $3 billion, in comparison with $13 billion in the first half of 1984. Overall, developing countries contributed a net flow of funds to banks in the rest of the world of $2 billion in the first half of 1985 and $8 billion in 1984, following net inflows to developing countries of $47 billion and $9 billion in 1982 and 1983, respectively.

Regional Developments

Growth in international bank claims on the developing countries in the Western Hemisphere (excluding the offshore centers of the Bahamas, the Cayman Islands, the Netherlands Antilles, and Panama) declined from about $16 billion in 1983 (6 percent) to about $7.5 billion (3 percent) in 1984 (Table 7). Bank claims on these countries declined by $0.8 billion in the first half of 1985 compared with lending of $1.7 billion in the first six months of 1984. Interbank lending declined from almost $12 billion in 1983 to about $7 billion in 1984 (Table 26), while bank lending to nonbanks fell from just over $4 billion in 1983 to $0.5 billion in 1984 (Table 27). In the first half of 1985, interbank claims in these countries declined by over $1 billion while claims on nonbanks rose by $0.5 billion.

In 1984, total bank lending to developing countries in the Western Hemisphere was less than disbursements under concerted lending packages because some banks reduced their claims on certain countries. In most countries where international banks agreed to provide new money as part of debt restructuring packages, overall lending was larger than the concerted loans disbursed. Banks’ claims on Brazil and Chile rose by $7.4 billion and $1.2 billion, respectively, compared with concerted lending of $6.5 billion and $0.8 billion, respectively. However, international bank claims on Mexico rose by $1.5 billion, despite concerted bank lending of almost $3 billion. Banks also reduced their claims by $1.7 billion on Argentina and by $2.2 billion on Venezuela.

Countries in the Western Hemisphere were able to increase their deposits with international banks by nearly $17 billion in 1984, about the same amount as in 1983. Deposits fell by $0.5 billion during the first half of 1985 (Table 25). Monetary authorities largely accounted for an increase of $12 billion of interbank deposits, mostly from Brazil and Mexico, while the increase in international deposits of nonbanks of $5 billion was principally from Brazil, Mexico, and Venezuela. On a net basis, countries in this region supplied almost $9 billion to international banks in 1984, with Mexico and Venezuela accounting for over 80 percent of this. Developing countries in the Western Hemisphere were net suppliers of funds on a small scale in the first half of 1985.

International banks increased their claims on countries in Asia (excluding Hong Kong and Singapore) by $5.8 billion in 1984 (6 percent increase in bank claims) compared with $8.4 billion in 1983 (9.5 percent). This slowdown in bank lending may reflect the smaller net financing requirement of the region and increased borrowing on the international bond and floating rate note markets.20 (Asian country borrowers accounted for 60 percent of bond issues by developing countries in 1984.) In the first half of 1985, international banks’ claims on developing countries in Asia increased by $1.9 billion, unchanged from the same period a year earlier.

In 1984, Korea increased its liabilities to international banks by $3.6 billion. China increased its external liabilities by $1 billion. The Philippines continued to face major debt-servicing difficulties, and a tentative agreement on concerted lending of $925 million was finalized only in 1985. Total bank claims on the Philippines increased by $0.1 billion in 1984.

Asian countries deposited about $6 billion in 1984, after having deposited $11 billion in 1983. Indonesia increased its deposits by $1.6 billion, while the international banks took in $1.1 billion in deposits from Korea, of which $0.9 billion were interbank transactions. Banks’ liabilities to countries in Asia increased by $1 billion in the first half of 1985 in comparison with an increase of almost $7 billion in the same period a year earlier. Asian countries supplied not less than $0.4 billion of funds to the rest of the world in 1984, in comparison with $2.8 billion in 1983, but became a net taker of funds ($1 billion) in the first half of 1985.

International banks’ claims on countries in Europe increased by $2.9 billion in 1984 (4 percent) or about the same as in 1983 ($3 billion or by 5 percent). In 1984, banks’ total claims increased by $1.4 billion on Turkey, $0.9 billion on Yugoslavia, $1.4 billion on Greece, and $0.2 billion on Hungary, but declined by $0.6 billion on Romania. In the first half of 1985, bank claims on countries in Europe increased by $2.9 billion with Hungary, Turkey, and Yugoslavia accounting for a large proportion of the lending.

Table 7.Total Cross-Border Bank Lending to and Deposit Taking from Developing Countries, 1983–841,2(In billions of U.S. dollars)
Lending3Deposit Taking4
1983198419831984
Africa7.30.71.8−0.5
Of which:
Algeria0.20.7−0.5−0.4
Côte d’Ivoire0.1−0.30.1
Liberia−0.11.50.40.3
Nigeria1.3−0.4−0.10.4
South Africa3.01.50.8−2.5
Asia8.45.811.26.2
Of which:
China0.81.03.60.3
India0.90.10.90.3
Indonesia2.80.32.11.6
Korea2.23.6−0.41.1
Malaysia1.81.40.1−0.2
Philippines−1.30.1−1.20.2
Thailand0.50.9−0.2−0.1
Europe3.12.92.44.7
Of which:
Greece0.91.4−0.10.4
Hungary0.90.20.50.8
Portugal0.6−0.10.40.6
Romania−0.6−0.60.20.3
Turkey0.51.41.2
Yugoslavia0.70.90.51.1
Middle East3.3−1.1−3.0−3.6
Of which:
Egypt0.40.61.6−0.5
Israel−0.4−0.7−0.5−1.0
Kuwait0.1−0.5−0.9−0.3
United Arab Emirates−1.2−0.32.0
Western Hemisphere15.87.316.216.6
Of which:
Argentina2.2−1.7−0.4−0.2
Brazil5.67.45.16.8
Chile0.31.20.80.1
Colombia0.60.3−0.2
Ecuador1.00.60.6
Mexico2.91.55.34.9
Peru0.30.10.20.5
Venezuela−1.1−2.22.52.2
Total37.915.728.523.4
Note: Owing to rounding, components may not add.Sources: International Monetary Fund. International Financial Statistics; and Fund staff estimates.

In general, data on lending and deposit taking are derived from stock data on the reporting countries’ liabilities and assets, excluding changes attributed to exchange rate movements.

Excluding offshore centers.

As measured by differences in the outstanding liabilities of borrowing countries defined as cross-border interbank accounts by residence of borrowing bank plus international bank credits to nonbanks by residence of borrower.

As measured by differences in the outstanding assets of depositing countries, defined as cross-border interbank accounts by residence of lending bank plus international bank deposits of nonbanks by residence of depositor.

Note: Owing to rounding, components may not add.Sources: International Monetary Fund. International Financial Statistics; and Fund staff estimates.

In general, data on lending and deposit taking are derived from stock data on the reporting countries’ liabilities and assets, excluding changes attributed to exchange rate movements.

Excluding offshore centers.

As measured by differences in the outstanding liabilities of borrowing countries defined as cross-border interbank accounts by residence of borrowing bank plus international bank credits to nonbanks by residence of borrower.

As measured by differences in the outstanding assets of depositing countries, defined as cross-border interbank accounts by residence of lending bank plus international bank deposits of nonbanks by residence of depositor.

In other regions, international banks increased their claims on countries in Africa by $0.7 billion in 1984 (1 percent) compared with an increase of over $7 billion in 1983 (11 percent). In 1984, banks’ recorded claims increased by $1.5 billion on Liberia (reflecting loans related to shipping activity), and $0.7 billion on Algeria, but declined by $1.5 billion on South Africa, $0.4 billion on Nigeria, and $0.3 billion on Côte d’Ivoire. International banks decreased their total claims on countries in the Middle East (excluding Bahrain) by over $1 billion (1 percent) compared with an increase of over $3 billion in 1983 (3 percent). Banks decreased their total claims on countries in both Africa and the Middle East in the first half of 1985.

Seven offshore banking centers, comprising the Bahamas, Bahrain, the Cayman Islands, Hong Kong, the Netherlands Antilles, Panama, and Singapore, are treated separately from other developing countries and territories in this report. Lending to offshore centers picked up significantly to over $29 billion in 1984, compared with $7 billion in 1983. Interbank lending accounted for $27 billion in 1984 and $6 billion in 1983. The rebound in lending to offshore centers was more than accounted for by the increase of bank claims on Singapore, the Cayman Islands, and Hong Kong of $16 billion, $12 billion, and $7 billion, respectively. In contrast, deposit taking from offshore centers is recorded as having declined from $27 billion in 1983 to $19 billion in 1984. Thus, the offshore centers are shown as net takers of funds in the amount of $11 billion in 1984, while they were net placers of $19 billion in 1983. During the first half of 1985, offshore centers were net takers of $3 billion.

Lending Behavior of Banks by Ownership and Size

As described above, the BIS has developed data on the international activity of banks classified by nationality of ownership, rather than by the location of banking offices (Table 8). At the end of 1983, the earliest date for which data exist, the reporting banks’ international claims totaled $2,136 billion. By end-1984, these claims had increased by almost $47 billion (2.2 percent) in current dollar terms. The BIS has estimated, however, that the dollar’s appreciation against other currencies in 1984 reduced the current dollar value of banks’ total assets in other currencies by almost $65 billion. Expressed in exchange rate adjusted terms, therefore, the reporting banks’ international books grew by some $110 billion.21 The $65 billion valuation effect cannot be allocated across individual banking nationalities.22

The statistics, while not adjusted for the effect of exchange rate movements, provide insight into the relative importance of different groups of banks in lending to nonbanks, other banks, and their own related offices. The most important nationality groups are U.S. banks with a share of 28 percent of total reported assets and Japanese banks with a share of nearly 24 percent. The increase of almost $47 billion in 1984 in total claims of all reporting countries was more than accounted for by Japanese banks. This compares with a decline of some $17 billion, or 2.6 percent, in the international claims of U.S. banks. The increase in total claims of all reporting countries reflected, in large part, an increase of interbank activity, which was $41 billion, or almost 90 percent of the total.

Broadly, more than half of the increase in international assets of banks in industrial countries during 1984 and two thirds of total interbank activity was accounted for by an increase in claims of banks on their own related offices, which was dominated by Japanese and U.S. banks. The increase in assets between unrelated banks was more than fully accounted for by Japanese banks. Japanese banks also recorded the largest change in liabilities to unrelated banks. Lending to nonbanks by Japanese banks also more than accounted for the total increase in such lending and Japanese banks were also the largest net providers of funds to nonbanks. U.S. banks reduced their claims on other banks by about 3 percent and on nonbanks by over 2 percent. The scale of Japanese banking activity is evidenced by the fact that 8 Japanese banks are among the world’s 20 largest, ranked by assets (Table 35).

The BIS also compiles information that incorporates, where available, measures of hanks’ assets on a consolidated basis for countries within the reporting area vis-à-vis countries outside the reporting area. A summary of these data, together with the components for U.K. and U.S. banks, is provided in Table 9. These data extend to the activities of bank affiliates located outside the reporting area; also, the figures include not only the claims of such affiliates, but also their local lending in nonlocal currency. However, several countries, including Japan, do not yet publish information for their banks on a consolidated basis, and the reporting area for the data was expanded in 1984, making interpretation of the flow data difficult.23

Table 8.International Assets, Liabilities, and Net Position of Banks by Nationality of Ownership(In billions of U.S. dollars)
Of which, to
Total ClaimsRelated OfficesOther BanksNonbanks
Country of Parent BankDec. 1984Change during 1984Dec. 1984Change during 1984Dec. 1984Change during 1984Dec. 1984Change during 1984
Total2,183.046.7505.325.8939.914.7702.77.4
Of which:
Canada88.9−0.421.0−1.431.52.335.5−1.2
France197.16.824.20.2112.17.755.6−0.8
Germany, Federal Republic of142.1−1.811.10.672.72.856.9−5.2
Italy88.28.12.90.660.84.124.03.6
Japan513.763.0136.216.5218.625.0153.520.9
Switzerland75.3−1.511.7−1.337.20.920.4
United Kingdom161.4−9.519.60.773.8−8.063.3−1.8
United States614.5−16.5241.97.7193.4−20.0176.1−4.3
Of which, to
Total LiabilitiesRelated OfficesOther BanksNonbanks
Country of Parent BankDec. 1984Change during 1984Dec. 1984Change during 1984Dec. 1984Change during 1984Dec. 1984Change during 1984
Total2,088.470.4504.534.193.5−13.4421.843.3
Of which:
Canada98.01.512.30.237.4−4.538.64.5
France189.15.129.21.5123.51.221.11.2
Germany, Federal Republic of128.3−2.817.63.770.6−11.727.53.6
Italy87.69.54.2−0.473.27.06.00.8
Japan493.281.5137.723.8256.436.640.110.1
Switzerland68.32.325.2−0.210.7−4.719.96.3
United Kingdom164.7−10.819.50.978.0−8.343.7−2.9
United States559.0−8.4222.98.6122.9−16.9147.012.8
Of which, to
Net Claims/Net LiabilitiesRelated OfficesOther BanksNonbanks
Country of Parent BankDec. 1984Change in net positionDec. 1984Change in net positionDec. 1984Change in net positionDec. 1984Change in net position
Total94.6−23.70.8−8.34.428.1280.9−35.9
Of which:
Canada−9.1−1.98.7−1.6−5.96.8−3.1−5.7
France8.01.7−5.0−1.3−11.46.534.5−2.0
Germany, Federal Republic of13.81.0−6.5−3.12.114.529.4−8.8
Italy0.6−1.4−1.31.0−12.4−2.918.02.8
Japan20.5−18.5−1.5−7.3−37.8−11.6113.410.8
Switzerland7.0−3.8−13.5−1.126.55.60.5−6.3
United Kingdom−3.31.30.1−0.2−4.20.319.61.1
United States55.5−8.119.0−0.970.5−3.029.1−17.1
Source: Bank for International Settlements, The Nationality Structure of the International Banking Market and the Role of Interbank Operations.
Source: Bank for International Settlements, The Nationality Structure of the International Banking Market and the Role of Interbank Operations.
Table 9.Change in Bank Claims on Developing Countries, 1982–First Half of 19851(In billions of U.S. dollars and in percent)
19821983198412 months to June 1985
Billions of U.S. dollarsGrowth rateBillions of U.S. dollarsGrowth rateBillions of U.S. dollarsGrowth rateBillions of U.S. dollarsGrowth rate
Developing countries
BIS semiannual39.310.026.06.04.71.06.01.3
U.S. claims data11.58.26.24.1−3.5−2.2−8.0−5.1
U.K. claims data6.411.22.33.7−0.9−1.4−1.9−2.9
Capital-importing developing countries
BIS semiannual38.210.221.75.34.71.16.81.6
U.S. claims data11.68.55.73.9−2.7−1.8−7.3−4.8
U.K. claims data6.211.72.03.3−0.1−0.2−1.2−2.0
Africa
BIS semiannual5.510.83.15.5−1.0−1.7−1.2−2.0
U.S. claims data1.312.41.08.5−0.8−6.0−1.9−15.1
U.K. claims data2.931.10.54.1−0.2−2.0−1.1−9.0
Asia
BIS semiannual10.417.18.712.23.84.74.85.9
U.S. claims data3.814.21.44.5−3.0−9.5−2.7−9.0
U.K. claims data1.416.50.43.6−0.3−3.0−0.7−6.5
Indonesia
BIS semiannual2.737.51.515.21.19.30.10.8
U.S. claims data0.624.20.619.9−0.2−5.0−0.6−15.3
U.K. claims data0.563.60.326.02.1−0.2−12.8
Korea
BIS semiannual3.316.61.98.20.31.21.97.5
U.S. claims data2.124.10.54.1−1.5−13.3−1.1−10.0
U.K. claims data0.310.8−0.2−7.4−0.1−2.5−0.2−7.9
Philippines
BIS semiannual2.423.50.64.8−1.4−10.10.10.8
U.S. claims data0.46.90.35.5−0.6−10.0−0.2−3.1
U.K. claims data0.211.70.14.2−0.2−9.6−0.1−4.8
Europe
BIS semiannual−0.3−0.71.63.5−0.6−1.21.63.3
U.S. claims data−0.8−7.00.99.5−0.4−3.6−1.3−12.2
U.K. claims data−0.2−2.70.23.2−0.2−2.5−0.1−1.9
Middle East
BIS semiannual3.519.70.73.3−0.7−4.5−0.7−4.6
U.S. claims data0.38.10.38.5−0.4−9.0−0.4−10.9
U.K. claims data0.532.0−0.2−11.2−0.2−13.3−0.2−8.5
Western Hemisphere
BIS semiannual19.19.67.73.53.21.42.21.0
U.S. claims data6.98.22.12.31.81.9−0.9−1.0
U.K. claims data1.66.11.13.90.82.80.93.0
Argentina
BIS semiannual0.93.60.20.8−1.5−5.60.41.6
U.S. claims data−0.2−2.00.33.3−0.5−6.3−0.3−3.2
U.K. claims data−0.3−7.80.12.8−0.1−1.3−0.1−1.6
Brazil
BIS semiannual8.015.21.72.84.87.92.43.7
U.S. claims data3.621.50.21.13.215.60.73.1
U.K. claims data1.218.20.78.50.78.50.55.4
Mexico
BIS semiannual5.810.25.58.71.62.30.40.6
U.S. claims data2.913.42.08.00.20.7−0.8−3.0
U.K. claims data0.23.10.33.80.11.10.11.4
Venezuela
BIS semiannual1.35.0−0.3−1.1−0.9−3.3−0.3−1.1
U.S. claims data1.110.5−0.3−2.8−0.4−4.0−0.7−6.3
U.K. claims data−0.1−4.3−0.2−5.4−0.1−4.20.11.8
Note: Owing to rounding, components may not add.Sources: Bank for International Settlements, The Maturity Distribution of International Bank Lending; Federal Financial Institutions Examination Council, Country Exposure Lending Survey; and Bank of England, Bank of England Quarterly Bulletin.

These data are not adjusted for the impact of exchange rate movements, and are based on consolidated reports of banks.

Note: Owing to rounding, components may not add.Sources: Bank for International Settlements, The Maturity Distribution of International Bank Lending; Federal Financial Institutions Examination Council, Country Exposure Lending Survey; and Bank of England, Bank of England Quarterly Bulletin.

These data are not adjusted for the impact of exchange rate movements, and are based on consolidated reports of banks.

The United States publishes data for its banks on a consolidated basis by geographical destination (Table 10). After increasing by 8 percent in 1982, the consolidated claims of U.S. banks on developing countries increased by 4 percent in 1983 and declined by over 2 percent in 1984. In 1984, U.S. banks’ claims decreased in aggregate by $3 billion (10 percent) on developing countries in Asia. The decline in U.S. banks’ claims was particularly large in Korea ($1.5 billion) and the Philippines ($0.6 billion). The only material increases in U.S. banks’ claims occurred in China ($0.2 billion) and Thailand ($0.1 billion). With regard to developing countries in the Western Hemisphere, U.S. banks’ claims increased in aggregate by $1.8 billion (1.9 percent) in 1984. The largest increase in banks’ claims was to Brazil ($3.2 billion), while U.S. banks’ claims to Argentina declined ($0,5 billion), as they also did to Venezuela ($0.4 billion). Further, U.S. banks’ claims declined to developing countries in Europe by 3.6 percent, and to Africa by 6 percent.

Table 10 also shows the U.S. banks’ claims by geographical destination according to the size of the bank. The middle-size U.S. banks recorded some expansion in lending to developing countries, increasing their claims by about 1 percent in 1984, but the nine money center banks (the nine largest banks) decreased their claims by 1 percent in 1984. The regional banks (those ranked below the 24 largest) have been withdrawing from international lending, increasing their claims on developing countries by nearly 1 percent in 1983 and decreasing their claims by 8 percent in 1984.

In the 12 months to June 1985, U.S. bank claims on developing countries declined by $8 billion (about 5 percent). U.S. banks reduced their claims on developing countries in all regions, with the largest decline for countries in Africa (15 percent) and with substantial declines for countries in Europe (12 percent), in the Middle East (11 percent), and in Asia (9 percent). All size categories of U.S. banks reduced their claims on developing countries, with declines of almost 8 percent for the regional banks; 5 percent for the 9 money center banks; and 2 percent for the middle-size banks.

Estimates prepared by staff of the Board of Governors of the Federal Reserve System indicate that U.S. banks’ lending to non-OPEC developing countries may have been understated by $3½ billion (approximately 3½ percent) during 1983–84. This is roughly equivalent to the absolute decline in claims on developing countries recorded in 1984 alone; thus, the declining trend in U.S. claims is slowed but not reversed by such corrections.

Table 10.Change in Claims of U.S. Banks on Developing Countries, 1982–First Half of 19851(In billions of U.S. dollars; and in percent)
19821983198412 months to June 1985
Billions of U.S. dollarsGrowth rateBillions of U.S. dollarsGrowth rateBillions of U.S. dollarsGrowth rateBillions of U.S. dollarsGrowth rate
Developing countries
All banks11.58.26.24.1−3.5−2.2−8.0−5.1
Nine banks7.18.03.94.1−1.4−1.4−5.1−5.1
Fifteen banks2.911.52.17.50.20.6−0.6−2.2
Others1.55.70.20.7−2.3−8.0−2.3−8.2
Capital-importing developing countries
All banks11.68.55.73.9−2.7−1.8−7.3−4.8
Nine banks7.38.73.33.6−0.8−0.8−4.8−4.9
Fifteen banks2.811.42.28.10.30.9−0.4−1.3
Others1.45.40.20.8−2.2−7.7−2.2−7.9
Africa
All banks1.312.41.08.5−0.8−6.0−1.9−15.1
Nine banks0.78.10.910.2−0.8−8.1−1.1−12.4
Fifteen banks0.534.50.315.40.211.9−0.4−17.3
Others0.217.2−0.1−4.7−0.2−17.1−0.4−29.1
Asia
All banks3.814.21.44.5−3.0−9.5−2.7−9.0
Nine banks2.714.80.31.3−2.0−9.3−1.9−9.3
Fifteen banks0.48.40.58.20.6−0.5
Others0.620.90.617.0−1.1−25.6−0.8−26.1
Indonesia
All banks0.624.20.619.9−0.2−5.0−0.6−15.3
Nine banks0.526.90.521.0−0.3−8.8−0.5−17.5
Fifteen banks10.97.50.130.1−3.5
Others12.232.6−14.82.9
Korea
All banks2.124.10.54.1−1.5−13.3−1.1−10.0
Nine banks1.526.4−0.5−6.8−1.0−15.5−0.3−4.5
Fifteen banks0.418.90.520.50.4−0.2−8.8
Others0.322.00.528.5−0.5−24.0−0.6−27.8
Philippines
All banks0.46.90.35.5−0.6−10.0−0.2−3.1
Nine banks0.26.30.11.3−0.2−4.4−0.1−3.5
Fifteen banks1.72.7−0.1−4.60.9
Others0.122.80.236.3−0.4−42.7−8.3
Europe
All banks−0.8−7.50.99.5−0.4−3.6−1.3−12.2
Nine banks−0.3−4.60.812.8−0.4−4.9−1.3−16.5
Fifteen banks−0.1−7.30.15.70.16.10.13.6
Others−0.3−20.4−3.5−0.1−7.6−0.1−5.5
Middle East
All banks0.38.10.38.5−0.4−9.0−0.4−10.9
Nine banks0.16.00.28.6−0.2−7.8−0.1−5.6
Fifteen banks0.119.80.119.7−0.9−0.1−20.0
Others0.17.51.5−0.2−18.8−0.1−19.0
Western Hemisphere
All banks6.98.22.12.31.81.9−0.9−1.0
Nine banks4.18.51.12.12.54.7−0.3−0.4
Fifteen banks1.912.11.37.3−0.1−0.60.10.5
Others0.84.2−0.3−1.4−0.6−3.0−0.8−3.9
Argentina
All banks−0.2−2.00.33.3−0.5−6.2−0.3−3.2
Nine banks−0.1−1.70.24.5−0.3−4.60.3
Fifteen banks0.16.00.28.4−0.1−6.1−0.1−4.5
Others−0.2−12.7−0.1−8.4−0.2−13.6−0.2−17.3
Brazil
All banks3.621.50.21.13.215.60.73.1
Nine banks2.725.02.518.80.64.1
Fifteen banks0.930.70.410.30.410.00.9
Others0.11.5−0.2−5.80.39.41.2
Mexico
All banks2.913.42.08.00.20.7−0.8−3.0
Nine banks1.311.11.39.80.64.0−0.4−2.9
Fifteen banks0.818.70.24.0−0.20.23.8
Others0.814.10.57.7−0.4−5.3−0.6−8.5
Venezuela
All banks1.110.5−0.3−2.8−0.4−4.0−0.7−6.3
Nine banks0.811.3−0.2−2.2−0.2−2.6−0.3−4.5
Fifteen banks0.318.81.3−0.1−5.3−0.2−8.5
Others−1.4−0.2−10.6−0.1−8.9−0.2−12.4
Note: Owing to rounding, components may not add.Source: Federal Financial Institutions Examination Council, Country Exposure Lending Survey.

These data are based on consolidated reports of banks.

Note: Owing to rounding, components may not add.Source: Federal Financial Institutions Examination Council, Country Exposure Lending Survey.

These data are based on consolidated reports of banks.

The only other country within the BIS reporting area that publishes consolidated data by geographical destination on a basis that permits analysis of flows according to a Fund country classification is the United Kingdom (Table 9). There was also an overall decline in U.K. banks’ claims on developing countries in 1984, This decline amounted to $0.9 billion, or 1.4 percent, although claims of U.K. banks rose by 2.8 percent on developing countries in the Western Hemisphere ($0.8 billion). The decline against countries in Asia and Europe may. in part, reflect underrecording, owing to banks’ holdings of floating rate notes issued by developing countries’ borrowers, as well as the fact that exchange rate adjustments cannot be made to take account of the non-U.S. dollar lending of U.K. banks.

In the 12 months to June 1985, U.K. banks’ claims on developing countries declined by $1.9 billion, or 2.9 percent, although claims of U.K. banks continued to rise by 2.9 percent on developing countries in the Western Hemisphere.

Developments in Banks’ Claims Relative to Capital

For the United States, available data permit a detailed analysis of developments in banks’ balance sheets (Chart 4 and Table 34). Between 1977 and 1981, U.S. banks’ capital ratios deteriorated from 5.7 percent to 5.4 percent. During this period, claims on developing countries grew, on average, by about 5 percent a year more rapidly than nominal GDP, and increased, as a proportion of total claims, from 9.2 percent to 10.7 percent. Bank capital grew at about the same rate as nominal GDP.

Between 1982 and 1984, U.S. banks’ capital to total claims rose from 5.6 percent to 6.5 percent and continued to rise to 6.8 percent in the first half of 1985. This improvement in U.S. banks’ capital ratios reflected both a rapid growth in capital and also a marked slowdown in the growth of total assets. Increases in capital were substantial during 1982 to the first half of 1985, especially in light of lower inflation. Total assets grew relatively slowly during this period. U.S. banks’ external claims on developing countries declined, as a proportion of their total claims, to 9.6 percent in the first half of 1985, but this was still somewhat higher than in 1977. It is noteworthy that U.S. banks reduced their lending to developing countries at a considerably more rapid pace than they reduced their total lending in 1983, and claims on these countries were reduced in 1984 and the first half of 1985.

It is not feasible to prepare a general analysis of banking developments in other industrial countries with the same degree of detail or internal consistency as for the United States, because comprehensive information is not generally available on banks’ consolidated exposure to developing countries or the corresponding bank capital. Moreover, national accounting regulations differ markedly, as do prudential guidelines on capital and on the valuation of assets; exposure of non-U.S, banks is overstated to the extent that undisclosed provisions have been made.

While developments among countries have varied markedly, the capital ratios of industrial country banks generally deteriorated during the late 1970s. Subsequently, for many of these countries, there was a rise in capital/asset ratios. For the industrial countries as a group, the bank capital ratio appears to have returned in 1984 to the 1977 level, although this was not the case for each country within the group. The strengthening of the aggregate capital ratio during this period reflected a significant increase in capital. In countries other than the United States, bank capital is largely denominated in local currency, while foreign assets tend to be denominated in U.S. dollars, and the sizable appreciation of the U.S. dollar in recent years retarded efforts to increase aggregate capital ratios. Similarly, the depreciation of the U.S. dollar in the first half of 1985 will have aided these countries’ banks in strengthening their capital ratios, while allowing room for further increases in banks’ claims.

While the true claims of industrial country banks on developing countries is not known, some general trends can be seen (Chart 5). As a percentage of banks’ total assets, banks’ international claims have risen significantly since the mid-1970s. More than 30 percent of banks’ assets are now accounted for by external claims. Some 23 percent of international claims are claims on developing countries, although the proportion has been falling, especially for developing countries other than the seven major borrowers. The recent decline in claims on developing countries as a proportion of international claims is only partly accounted for by developments in U.S. banks’ claims. Moreover, the claims of European banks, in particular, has probably been reduced further by provisioning. Even before allowance for provisioning, it appears that claims on developing countries probably do not now account for a greater proportion of banks’ international claims than in the mid-1970s.24 However, within this aggregate, the share accounted for by major borrowers has risen to a modest extent.

Chart 5.Concentration of Cross-Border Bank Claims, 1976–84

(In percent)

Sources: Bank for International Settlements, International Banking Developments; International Monetary Fund, International Financial Statistics; and Fund staff estimates.

1 Owing to a change in the coverage of the BIS reporting area, there is a break in the series.

While projections of future lending must be considered cautiously, the projections of bank lending to developing countries contained in the World Economic Outlook’s medium-term scenarios are consistent with a reduction in the ratio of claims on these countries to the aggregate capital of banks in industrial countries, a process which is already under way. Lending by private creditors was projected to rise by about 2 percent in 1986 and more rapidly during 1987–90. The ratio of banks’ claims to capital could thus return to the level prevailing before the increase in lending to developing countries that occurred during the late 1970s and early 1980s, provided that bank capital continues to increase somewhat more rapidly than nominal GDP and that exchange rate developments are as projected. For non-U.S. banks, developments in the U.S. dollar exchange rate will have an important impact on the speed at which their claims relative to capital is reduced, although this will be offset to the extent that currency redenomination of U.S. dollar denominated claims takes place.

Terms of Bank Lending

The BIS semiannual series show that the maturity of outstanding bank debt of most of the countries outside the BIS reporting area lengthened considerably in 1984, after a gradual lengthening in the previous years. A slight reversal of this lengthening occurred in the first half of 1985 but was mainly attributable to the smaller industrial countries. This development is evidenced by the reduced share of short-term debt in total debt outstanding (Table 11),25 and marks a significant departure from the tendency toward a general increase in short-term indebtedness that prevailed through mid-1982. In some instances, the declining proportion of short-term debt reflects the impact of bank debt restructuring arrangements, whereby sizable proportions of short-term debt have been converted into long-term debt. In Mexico, the share of short-term debt declined from a peak of almost 49 percent at the end of 1981 to 24.1 percent at the end of 1984, before increasing slightly to 25.9 percent at the end of June 1985. In Brazil, the share of short-term debt declined from almost 35 percent at the end of 1981 to 25.1 percent at the end of 1984 (although it increased somewhat to 26.7 percent at the end of June 1985).

This trend also reflected a deliberate effort by some developing countries, which continued to have access to spontaneous bank credits, to improve their external position by lengthening the maturity of their debt. This was the case in Korea, where the share of short-term debt declined from over 62 percent at the end of 1980 to 50 percent at the end of 1984 and 47.6 percent at the end of 1985. In still other instances, this trend may have resulted from a withdrawal of short-term loans and deposits by creditor banks.

The OECD data covering the maturity of new long-term bank credit commitments indicate that the average final maturity of new long-term bank credit commitments has lengthened slightly (Chart 3). The lengthening of maturities affected mostly concerted lending and, more generally, lending to developing countries.

Reference rates26 in 1984 were, on average, about 1-1¼ percentage points higher than in 1983 but declined significantly in the first half of 1985. As regards weighted average spreads over reference rates on new publicized medium-term bank credit commitments, such lending margins declined to 0.93 percent in 1984, compared with 1.15 percent in 1983. Average spreads remained above the levels experienced during 1979–82, but below those of 1974–78 (Table 31). Developments in 1984, however, reflected limited access for developing countries and increased competition for loans to highly regarded borrowers. As discussed in Section IV, margins for countries gaining external finance through concerted lending have also declined. The differential in the average spread between OECD and developing country borrowers, which had nearly doubled to 105 basis points in 1983, declined to 89 basis points in 1984. Furthermore, this average differential declined to 27 basis points in the second half of 1984 and the first half of 1985, when the spread to developing countries was cut significantly.

Table 11.Short-Term Claims in Percent of Outstanding Bank Claims, 1979–First Half of 19851
Dec. 1979Dec. 1980Dec. 1981Dec. 1982Dec. 19832Dec. 19842June. 1985
All countries44.045.547.146.744.341.842.4
Industrial countries (other than Group of Ten, Switzerland, Austria, Denmark, and Ireland)41.443.044.043.742.944.946.7
Developing countries44.946.948.148.145.341.441.8
Capital-importing43.445.446.446.443.139.239.9
Africa28.428.834.638.140.042.240.3
Asia52.855.454.151.748.746.346.4
Of which:
Indonesia39.741.341.738.439.041.941.3
Korea55.862.357.859.956.450.047.6
Philippines52.758.156.959.552.953.258.3
Europe37.636.234.432.433.333.333.9
Middle East76.378.078.778.469.768.968.5
Western Hemisphere43.646.446.946.642.235.236.8
Of which:
Argentina51.552.346.854.152.655.357.1
Brazil29.335.534.734.927.925.126.7
Mexico34.644.248.747.542.424.125.9
Venezuela61.158.961.557.559.165.265.8
Centrally planned economies341.038.443.139.238.138.940.1
Source: Bank for International Settlements, The Maturity Distribution of International Bank Lending.

Short-term claims are defined in this table as having a remaining maturity of one year or less.

Coverage of the series changes at end-1983 and end-1984.

Excluding Fund member countries.

Source: Bank for International Settlements, The Maturity Distribution of International Bank Lending.

Short-term claims are defined in this table as having a remaining maturity of one year or less.

Coverage of the series changes at end-1983 and end-1984.

Excluding Fund member countries.

The general decline in margins for borrowers with access to international markets and the decline in the average differential between industrial and developing countries reflects the fairly high liquidity of the financial markets and competitive pressures resulting from the increasing share of financing achieved through issuance of bonds or short-term notes. It is noteworthy that a market has developed in which banks are willing to extend long-term international credit on a spontaneous basis, mainly to those countries that also have access to the securities market where margins were very low during this period.

Concerning the currency distribution of syndicated loans, there was a continuation of the trend toward lessening the predominance of the U.S. dollar in 1984. The share of U.S. dollar in total borrowing declined below 75 percent in 1984, compared with 92 percent in 1981. This decline was broadly matched by the growing importance of the ECU, pound sterling, and yen, which increased their combined share from 2 percent in 1981 to almost 19 percent in 1984; the yen accounted for 60 percent of the increase. This reflects the internationalization of the yen and the liberalization of the Japanese financial markets, as well as the large proportion of bank lending by Japanese banks.

The pound sterling continued to increase its share of the market in 1984, although the bulk of borrowing operations was confined to U.K. enterprises. The use of the ECU expanded more rapidly than any other monetary unit except the yen, with loan completions exceeding the equivalent of $ 1.6 billion compared with $0.6 billion in 1983. Italian and Spanish entities remained the most frequent national borrowers to use ECUs on the loan market, but the Union of Soviet Socialist Republics and Hungary also accessed funds in ECU in 1984.

This analysis is based on OECD data on long-term external bank credit commitments. These cover new publicized medium-and long-term bank loans—including not only syndicated loans, but also “club” deals and single bank loans—signed or completed in a certain period, which have an original maturity of more than one year. They are not directly comparable to the data on lending previously referred to in the text, both because the amounts committed are not necessarily disbursed during the period, and because they relate to gross commitments and do not take account of amortization. These data nevertheless provide a useful indication about trends in the international banking markets. OECD data on long-term external bank commitments and other bank facilities are provided in Table 29.

However, recent global developments in flows of net funds should be treated with caution, particularly in view of the sizable net inflows in 1984 recorded for offshore centers and appearing as unallocated.

Excluding a new short-term trade deposit facility for Argentina of $0.5 billion.

Lending to Asian countries may be particularly affected by an underrecording of lending, owing to the exclusion of floating rate notes from the geographic analysis of bank claims in many countries. Bond issues by developing countries are discussed in Section V.

The Nationality Structure of the International Banking Market and the Role of Interbank Operations, Bank for International Settlements. May 10, 1985.

It may be assumed that this effect, which on average amounted to about 3 percent of total assets, had a relatively greater weight in the case of the European and. to a lesser degree, Japanese banks. This is because the share of assets denominated in currencies other than the U.S. dollar is probably higher than for banks in the United Slates and Canada.

These data are not corrected for exchange rate changes. Coverage of the BIS semiannual data was substantially broadened during the course of 1984, as additional countries began to report on a consolidated basis. It appears that changes in claims on developing countries were largely unrelated to the broadening of the statistical coverage. On that basis, and before exchange rate adjustment, the reporting banks’ claims on the developing countries rose by less than 1.5 percent in 1984. after increasing by over 6 percent and 10 percent in 1982 and 1983. respectively. To give a broad indication of the effect of exchange rate changes, it is estimated that, after adjustment, the growth in claims on all developing countries in 1984 would amount to $13 billion. or 2.8 percent (a rate of growth broadly comparable to that shown by the IBS data).

After allowing for breaks in statistical series, reflecting wider coverage.

Because there are changes in the coverage of the BIS, direct comparisons between 1983 and 1984 should he interpreted with caution.

Primarily comprising LIBOR. U.S. prime rate, and interest rate on certificates of deposit.

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