Chapter

Appendix I: International Bank Lending in 1981

Author(s):
International Monetary Fund
Published Date:
July 1982
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After expanding strongly for several years, international bank lending leveled off in 1981. New lending to both industrial and developing country borrowers last year was only marginally above the levels recorded in 1980. While the volume and direction of lending changed little over the past two years, there was a marked shift in the sources of funds for international banking markets. During 1979 and 1980 the oil exporting countries had placed an important part of their large payments surpluses with banks in the industrial countries. Last year, however, reflecting both the decline in the surplus of the oil exporters and changes in the composition of that surplus, the oil exporting countries were no longer net suppliers of funds to the international banking sector. The banks, therefore, had to rely almost entirely on the financial markets of the industrial countries to fund the expansion of their international lending in 1981. In particular, the United States replaced the oil exporters as the major net supplier of funds to the markets last year.

Environment for International Lending in 1981

To provide a context for the discussion of international bank lending, this section reviews very briefly recent experience regarding the growth of world trade, the current account imbalances of the major country groups, and macroeconomic developments in the industrial countries. Certain characteristics of the international economic environment are summarized inTable 8.

Table 8.Growth in International Lending and Selected Economic Indicators, 1973–81(In billions of U.S. dollars; and in per cent)
197319741975197619771978197919801981
International lending
1. Net new international lending through banks and bond markets4059589695114149179191
Bank lending1335040706890125160165
Growth in the stock of bank claims (in per cent)242918272020232521
Bond markets27918262724241926
2. Share of net external claims in total bank claims in 14 industrial countries (in per cent) 38.79.810.912.012.712.614.215.617.4
International payments
3. Total of identified current account deficits4–21–75–70–67–78–87–94–154–171
Seven largest industrial countries–3–25–8–12–17–15–13–37–21
Other countries–18–50–62–55–61–72–81–117–150
4. Oil exporting countries’ current account76835403137011571
5. Non–oil developing countries’ current account balance–12–37–47–32–28–39–59–86–99
6. Change in bank deposits of oil exporting developing countries1
Gross30141211337414
Net of new borrowing6322–113035
7. Reserve accumulation of non-oil developing countries102–21312161252
8. Growth in value of world trade (in per cent)37.844.75.112.713.916.126.221.9–1.5
Production and investment in industrial countries
9. Percentage growth of real GNP6.20.6–0.54.94.04.03.61.31.2
10. Percentage growth in real gross fixed investment6.34.83.9–1.3–0.3
11. Percentage change in GNP deflators7.411.711.17.67.77.57.98.98.7
Monetary developments
12. Monetary expansion in seven largest industrial countries (in per cent)511.99.312.512.710.710.29.68.37.8
13. Interest rates (six-month Eurodollar deposit rate, in per cent)9.311.27.66.16.49.412.014.416.5
Sources: Bank for International Settlements; Organization for Economic Cooperation and Development; International Monetary Fund, World Economic Outlook, Occasional Paper No. 9 (April 1982); and Fund staff estimates.

Data on bank lending and deposit taking are net of redepositing among banks within the BIS reporting area and, for the years after 1976, adjusted for the valuation effects of exchange rate movements on end-of-period stocks.

Net of double counting due to bank purchases of bonds.

Group of Ten countries plus Austria, Denmark, Ireland, and Switzerland.

Goods, services, and private transfers.

Weighted average (1979 GNP weights) of rate of growth of money plus quasi-money.

Sources: Bank for International Settlements; Organization for Economic Cooperation and Development; International Monetary Fund, World Economic Outlook, Occasional Paper No. 9 (April 1982); and Fund staff estimates.

Data on bank lending and deposit taking are net of redepositing among banks within the BIS reporting area and, for the years after 1976, adjusted for the valuation effects of exchange rate movements on end-of-period stocks.

Net of double counting due to bank purchases of bonds.

Group of Ten countries plus Austria, Denmark, Ireland, and Switzerland.

Goods, services, and private transfers.

Weighted average (1979 GNP weights) of rate of growth of money plus quasi-money.

During 1975–80, world imports increased at an average rate of 16 per cent per annum (line 8, Table 8). As a significant proportion of borrowing from the international banking system consists of short-term trade financing, this growth of world trade has played an important role in increasing the demand for international bank lending. Measured in U.S. dollars, the value of world imports declined by 1.5 per cent in 1981 and the growth of international bank lending slowed. However, in view of the strong appreciation of the U.S. dollar last year, these numbers understate both the expansion in world trade and the growth in international lending.

For the fifth year in a row, the total of the current account deficits for all deficit countries (line 3) increased, reaching $171 billion in 1981. The increase in payments imbalances has been quite rapid since 1979 and private international lending has played an important role in the financing of these imbalances. The larger current account imbalances have also been accompanied by a change in the position of the seven largest industrial countries relative to all other countries between 1980 and 1981. While the sum of the deficits for the seven largest industrial countries fell from $37 billion in 1980 to $21 billion in 1981, the deficits of the other countries increased from $117 billion to $150 billion. The deterioration in the payments position of other countries is seen in the accounts of both the oil exporting countries (line 4) and the non-oil developing countries (line 5).

Reflecting the decline in the oil exporting countries’ surplus from $115 billion in 1980 to $71 billion in 1981, net lending to the international banks (bank deposits net of new borrowings) by the oil exporters fell from $35 billion in 1980 to zero in 1981 (line 6). The non-oil developing countries, however, saw their current account deficits increase from $86 billion in 1980 to $99 billion in 1981.14

These changes in world trade and payments imbalances in 1981 had an uneven impact on the demand and supply of international credit. While the slowdown in the expansion of world trade reduced the need for additional trade credit, the growing deficits of the non-oil developing countries increased these countries’ demand for balance of payments financing. At the same time, the fact that the oil exporting countries were no longer net suppliers of funds to the banks meant that the continued expansion of international bank credit had to be funded almost entirely in the financial markets of the industrial countries.

As in 1980, the real GNP of the industrial countries grew at a slow rate during 1981 (line 9). Real gross fixed investment also declined for the second year in a row (line 10). Inflation, as measured by the GNP deflator (line 11) declined from 8.9 per cent per annum in 1980 to 8.7 per cent in 1981. The combination of slow growth, low real investment, and lower inflation would ordinarily be expected to be associated with reduced domestic real credit demands in the industrial countries, thereby facilitating an increase in international lending by banks to the rest of the world. During 1981, however, the mix of domestic monetary and fiscal policies adopted by the major industrial countries had a strong impact on both the composition of domestic credit demands and the cost of credit.

The rate of monetary expansion in the seven largest industrial countries declined from 10.7 per cent in 1977 to 8.3 per cent in 1980 and 7.8 per cent in 1981 (line 12). This deceleration in monetary growth was accompanied by a fairly steady rise in nominal and real interest rates in both domestic and international markets. On an annual average basis, Eurodollar deposit rates jumped from 6.4 per cent in 1977 to 12 per cent in 1979 and to 16.5 per cent in 1981 (line 13). While in 1977 Eurodollar deposit rates had been about equal to the increase in the U.S. GNP deflator, by 1978 that measure indicated an ex post real rate of interest of 3.2 per cent and in 1981 the real rate rose to 6.7 per cent. Real rates in other major capital markets also increased steeply over this period (Table 46).

A variety of factors contributed to this rise in nominal and real interest rates. High levels of inflation, along with greater variability in exchange rates, interest rates, and inflation, contributed to making financial assets, especially those with longer-term maturities, less attractive. High interest rates may also have reflected the fact that, in a number of industrial countries, there were either large existing fiscal deficits or the prospects of such deficits that would have to be financed by the markets.

International Banking Flows15

Overall Developments

Lending and Deposit Taking

After several years of strong growth, international bank lending leveled off in 1981. The increase in foreign claims of banks in the reporting area of the Bank for International Settlements rose from $90 billion in 1978 to $160 billion in 1980, but advanced only marginally to $165 billion in 1981 (Table 9).16 Not only the overall level but also the composition of international lending changed little between 1980 and 1981. In both years, claims on industrial countries rose by almost $100 billion, while those on non-oil developing countries increased by approximately $50 billion.17 In percentage terms, the growth of bank claims both on industrial countries (24 per cent) and non-oil developing countries (22 per cent) in 1981 exceeded the overall rate of expansion of 21 per cent, as claims on oil exporting countries and on centrally planned economies registered little increase.

Table 9.External Lending and Deposit Taking1 of Banks in BIS Reporting Area, 2 1978–81(In billions of U.S. dollars)
1981
1978197919801981First quarterSecond quarterThird quarterFourth quarter
Destination of lending39012516016530354555
Industrial countries38709610021192732
Oil exporting developing countries15764–3123
Non-oil developing countries254049508111319
Centrally planned economies476551221
International organizations and unallocated63473211
Sources of funds39012516016530354555
Industrial countries676610314130284241
Oil exporting developing countries33741461–1–3
Non-oil developing countries1413810–4338
Centrally planned economies4251–3–214
International organizations and unallocated34711255
Change in net claims5
On industrial countries–303–7–42–9–9–15–9
On oil exporting developing countries12–30–35–835
On non-oil developing countries102640411281011
On centrally planned economies4514544–3
International organizations and unallocated3–3–41–21–4
Sources: Bank for International Settlements; and Fund staff estimates.

The data on lending and deposit taking are derived from stock data on banks’ claims and liabilities (net of redepositing among banks in the BIS reporting area) including an adjustment for valuation changes due to exchange rate movements. Data on adjusted flows are provided by the Bank for International Settlements, but the distribution of those adjusted flows among the major groups of countries according to Fund classifications is a staff estimate.

The BIS reporting area comprises all banks in the Group of Ten countries, Austria, Denmark, Ireland, and Switzerland and the branches of U.S. banks in the Bahamas, the Cayman Islands, Hong Kong, Panama, and Singapore.

The classification by major groups of borrowers (depositors) was derived from BIS data in the following manner. For industrial countries, gross claims (liabilities) were reduced by redepositing among banks in the reporting area but increased by claims on (liabilities to) offshore centers. The latter thus were assumed, in the absence of the availability of a country classification of the on-lending from (deposit taking by) offshore centers, to represent lending to (deposit taking from) industrial countries. For the other groups of borrowers and depositors, net claims (liabilities) were taken to be equivalent to gross claims (liabilities).

Excludes Fund member countries except Hungary, which became a member in mid-1982.

Lending minus sources of funds.

Sources: Bank for International Settlements; and Fund staff estimates.

The data on lending and deposit taking are derived from stock data on banks’ claims and liabilities (net of redepositing among banks in the BIS reporting area) including an adjustment for valuation changes due to exchange rate movements. Data on adjusted flows are provided by the Bank for International Settlements, but the distribution of those adjusted flows among the major groups of countries according to Fund classifications is a staff estimate.

The BIS reporting area comprises all banks in the Group of Ten countries, Austria, Denmark, Ireland, and Switzerland and the branches of U.S. banks in the Bahamas, the Cayman Islands, Hong Kong, Panama, and Singapore.

The classification by major groups of borrowers (depositors) was derived from BIS data in the following manner. For industrial countries, gross claims (liabilities) were reduced by redepositing among banks in the reporting area but increased by claims on (liabilities to) offshore centers. The latter thus were assumed, in the absence of the availability of a country classification of the on-lending from (deposit taking by) offshore centers, to represent lending to (deposit taking from) industrial countries. For the other groups of borrowers and depositors, net claims (liabilities) were taken to be equivalent to gross claims (liabilities).

Excludes Fund member countries except Hungary, which became a member in mid-1982.

Lending minus sources of funds.

While the shift in the pattern of payments imbalances which occurred between 1980 and 1981 was not reflected in the direction of bank lending, the sharp drop in the surplus of the oil exporting countries had a marked impact on the liabilities side of the banks’ balance sheets. After increasing by almost $40 billion a year over 1979 and 1980, the deposits of the oil exporting countries with reporting banks increased by less than $4 billion in 1981. With deposits of the non-oil developing countries rising by only $10 billion and with deposits of the centrally planned economies actually declining marginally, in 1981 the banks had to fund their international lending almost entirely through the financial markets of the industrial countries. While banks had funded only 60 per cent of their international operations in industrial country markets during 1979 and 1980 and oil exporting countries had provided another 27 per cent, in 1981 the increase in deposits from industrial countries covered fully 86 per cent of the growth in the banks’ international claims.

On a claims minus liabilities basis, net lending out of the industrial countries via the banks rose from $7 billion in 1980 to $42 billion in 1981, while net lending from oil exporting countries dropped from $35 billion to zero. Non-oil developing countries borrowed approximately $40 billion more than they deposited in each of these years.

Medium-Term Credit Commitments

While actual international bank lending leveled off in 1981, new medium-term credit commitments increased sharply for the first time since 1978 (Table 10). Total medium-term commitments, which had been about $80 billion in each of the preceding two years, increased sharply to $145 billion in 1981, according to data compiled by the Organization for Economic Cooperation and Development (OECD). An estimated $50 billion of this increase, however, is accounted for by large commitments secured by U.S. firms in the middle of last year in connection with takeover activities, an important part of which will probably never be drawn down. Excluding these exceptional operations, total commitments reached almost $95 billion in 1981, a 19 per cent increase over the preceding year.

Table 10.Medium-Term International Bank Credit Commitments, 1978–81(In billions of U.S. dollars; and in per cent)
1978197919801981
Industrial countries34.324.139.294.6
Oil exporting developing countries9.87.75.45.4
Non-oil developing countries26.642.232.444.0
Net oil exporters8.512.59.013.5
Major exporters of manufactures10.816.015.418.9
Low-income countries0.33.70.92.0
Other net oil importers6.99.97.19.6
Centrally planned economies3.14.62.21.2
International organizations and unallocated0.41.61.00.1
Total74.279.179.9145.3
Memorandum items:
Share of non-oil developing countries in new commitments35.853.440.630.3
Ratio of new commitments to net bank lending82.460.848.488.1
Sources: Organization for Economic Cooperation and Development; for country detail see Table 42.
Sources: Organization for Economic Cooperation and Development; for country detail see Table 42.

The volume of new medium-term commitments tends to be highly variable on a year-to-year basis and is not closely correlated with actual bank lending over the short run, even if lags are taken into account. Several factors account for this divergence. Trade-related financing and other short-term credits are a major component of actual bank lending but are generally not reflected in the statistics on commitments. The data do not permit a disaggregation of bank lending into trade financing and drawdowns on syndicated credits, but presumably the former moves roughly in line with the value of world trade, while the latter, especially in nonindustrial countries, reflect more closely the pattern of payments imbalances. Commitments, moreover, are to a certain extent anticipatory, with both countries and firms having a strong incentive to seek assured sources of financing at times when either their borrowing requirements or market prospects appear uncertain. As is discussed more fully below, the volume of new commitments secured by developing country borrowers has been particularly variable over recent years.

Terms

After easing noticeably over the preceding two years, average spreads on new medium-term commitments stabilized in 1981 (Table 43). There was, however, a greater differentiation between borrowers. The weighted average spread on new commitments fell from more than 1 per cent in early 1978 to about

per cent in 1980 and remained at that in 1981. Spreads obtained by OECD borrowers, however, continued to decline during 1981, while spreads on loans to developing country borrowers were, on average, somewhat higher in 1981 than in 1980. As a result, the difference between the average spread for OECD and developing country borrowers, which had fallen from about 40 basis points in 1978 to about 25 basis points in the first half of 1980, rose to almost 50 basis points at the end of 1980 and remained at that over 1981. The markets also appear to be differentiating more sharply among developing countries. While the tighter terms faced by a few large borrowers weigh heavily in the upward movement of the average spread for developing countries, a number of developing countries, particularly in Asia, have continued to have access to the market on increasingly good terms.

Weighted average maturities on new commitments have been declining fairly steadily since mid-1979. For developing country borrowers the average maturity fell from almost 9½ years in the first half of 1979 to 7½ years at the end of 1981, and the decline for industrial countries has been similar. The overall average maturity fell by somewhat less than that for either of these two groups, as the Eastern European countries carried a greater weight in the earlier figure and borrowed on terms shorter than the average.

While from the lender’s perspective the shortening of maturities is a logical response to increased economic uncertainty, a progressive reduction in grace and repayment periods inevitably produces some bunching of amortization payments in future years. The pronounced shortening of terms which occurred in 1975 and 1976, for example, was a factor in a number of the bank debt rescheduling cases in the latter part of the 1970s. While the current phase of declining maturities has, to date, been less marked than that of 1975–76, the implications for the debt servicing capacity of the borrowing countries must be borne in mind.

The more immediate factor leading to an escalation in debt service payments has, of course, been the steep rise in interest rates in the financial markets of industrial countries. Although rates eased somewhat at the end of 1981, on an annual average basis the LIBOR increased by 2 percentage points in 1981 to 16½ per cent. It is becoming increasingly common for international syndications to include a portion priced over the prime lending rate of U.S. banks, rather than the LIBOR. Although the portion priced over prime generally carries a spread about ⅛ to ¼ percentage point below that on the LIBOR segment, the overall cost to the borrower, given the relationship between the two rates which has prevailed in 1980 and 1981, has been higher for the prime portion. On an annual average basis, the prime rate rose by 3½ percentage points in 1981 to almost 19 per cent. This shift to prime rate pricing has meant that the level of spreads per se is a less reliable indicator of market terms than has been the case historically.

Non-Oil Developing Countries

Despite an increase last year of $16 billion in the aggregate current account deficit of the non-oil developing countries, bank lending to these countries rose only marginally from $49 billion in 1980 to $50 billion in 1981. Such lending had, however, doubled between 1978 and 1980. The share of the overall financing requirement (current account balance plus accumulation of reserves) of the non-oil developing countries which was covered by bank lending rose from 38 per cent in 1974–75 to almost 60 per cent in 1979–80 (Chart 6). In 1981, however, borrowing from banks fell back to about 50 per cent of the financing requirement.

These overall numbers mask divergent trends in the pace of bank lending to various subgroups of non-oil developing countries. Bank lending as a proportion of the current account deficit has been declining steadily since 1978 for non-oil developing countries other than the net oil exporters (Table 11). In 1981, lending to the net oil exporters among the developing countries rose by $5 billion, while lending to the major exporters of manufactures rose by only $1 billion and lending to the other two major subgroups as classified in the World Economic Outlook, i.e., low-income countries and other net oil importers, declined. In 1981, bank credits financed fully 90 per cent of the aggregate deficit for the net oil exporters and 68 per cent for the major exporters of manufactures, but only 22 per cent for the other net oil importers and 5 per cent for the low-income countries.

Table 11.Bank Lending to Non-Oil Developing Countries, 1976–811(In billions of U.S. dollars; and in per cent)
197619771978197919801981
Bank lending to non-oil developing countries211525404950
Net oil exporters2625101419
Major exporters of manufactures311613182324
Low-income countries2311
Other net oil importers249997
Unallocated23–41
Bank lending as per cent of aggregate current account deficit665063675749
Net oil exporters275245910912390
Major exporters of manufactures39273130827368
Low-income countries–96202795
Other net oil importers253268523622
Share in bank lending to non-oil developing countries (in per cent) of
Net oil exporters229.211.719.224.827.837.5
Major exporters of manufactures350.040.053.145.847.948.2
Low-income countries–1.71.76.56.82.91.3
Other net oil importers18.924.135.922.519.313.3
Unallocated3.322.8–14.7–0.52.1–0.3
Percentage increase in bank claims on non-oil developing countries28.714.919.326.626.222.2
Net oil exporters234.36.915.328.030.533.7
Major exporters of manufactures331.612.922.525.926.9s22.
Low-income countries–12.89.838.144.316.36.9
Other net oil importers33.921.740.629.824.514.5
Memorandum items:
Increase in total net international claims of banks in the BIS reporting area (in per cent)26.920.220.023.124.621.3
Share of non-oil developing countries in total net bank lending (in per cent)30.021.327.231.629.530.5
Sources: Bank for International Settlements; and Fund staff estimates.

Data on bank lending and deposit taking are net of redepositing among banks within the BIS reporting area and, for the years after 1976, adjusted for the valuation effects of exchange rate movements on end-of-period stocks.

Bolivia, Congo, Ecuador, Egypt, Gabon, Malaysia, Mexico, Peru, Syrian Arab Republic, Trinidad and Tobago, and Tunisia. Excludes the offshore banking center Bahrain included in this category in the 1982 World Economic Outlook.

Argentina, Brazil, Greece, Israel, Korea, Portugal, South Africa, and Yugoslavia. Excludes the offshore banking centers Hong Kong and Singapore included in this category in the 1982 World Economic Outlook.

Sources: Bank for International Settlements; and Fund staff estimates.

Data on bank lending and deposit taking are net of redepositing among banks within the BIS reporting area and, for the years after 1976, adjusted for the valuation effects of exchange rate movements on end-of-period stocks.

Bolivia, Congo, Ecuador, Egypt, Gabon, Malaysia, Mexico, Peru, Syrian Arab Republic, Trinidad and Tobago, and Tunisia. Excludes the offshore banking center Bahrain included in this category in the 1982 World Economic Outlook.

Argentina, Brazil, Greece, Israel, Korea, Portugal, South Africa, and Yugoslavia. Excludes the offshore banking centers Hong Kong and Singapore included in this category in the 1982 World Economic Outlook.

The growth of bank claims on the net oil exporters increased sharply beginning in 1979. Bank lending to these countries rose from $5 billion in 1978 to $14 billion in 1980, despite an increase in their aggregate current account deficit of only $3 billion over this period (Table 12). The further increase in bank lending to these countries to $19 billion in 1981 was, however, associated with a marked deterioration in their current account position. The deficit of the net oil exporters rose by $10 billion in 1981, an amount equal to two thirds of the increase in the aggregate deficit for all non-oil developing countries. The data on bank lending to the net oil exporters is, of course, dominated by transactions with Mexico, which accounted for three fourths of bank claims on this group at the end of 1981 and about 80 per cent of the increase in claims during the year. Nevertheless, claims on most of the other countries in this group also recorded fairly strong expansion in 1981.

Table 12.Non-Oil Developing Countries: Current Account Positions and Private Market Financing, 1973–81(In billions of U.S. dollars)
197319741975197619771978197919801981
All non-oil developing countries
Current account position–12–37–47–32–29–39–59–86–102
Borrowing through private markets111616231829435154
Banking101515211525404950
Bonds117234324
Medium-term credit commitments599131327423243
Net oil exporters
Current account position–3–5–10–8–7–8–9–11–21
Borrowing through private markets …836111521
Banking625101419
Bonds11112
Medium-term credit commitments2334913913
Major exporters of manufactures
Current account position–4–19–20–12–8–10–22–32–36
Borrowing through private markets12715202425
Banking11613182324
Bonds111112211
Medium-term credit commitments436511161519
Low-income countries
Current account position–4–8–8–4–4–8–10–15–14
Borrowing through private markets12311
Medium-term credit commitments412
Other net oil importers
Current account position–1–5–10–8–11–13–17–26–30
Borrowing through private markets1249997
Medium-term credit commitments334471079
Memorandum item:
Accumulation of reserves103–11412161341
Sources: Bank for International Settlements; Organization for Economic Cooperation and Development; International Monetary Fund, World Economic Outlook, Occasional Paper No. 9 (April 1982); and Fund staff estimates.

Almost all borrowing was from banks.

Sources: Bank for International Settlements; Organization for Economic Cooperation and Development; International Monetary Fund, World Economic Outlook, Occasional Paper No. 9 (April 1982); and Fund staff estimates.

Almost all borrowing was from banks.

Although the rate of growth of bank claims on the major exporters of manufactures slowed in 1981 and the ratio of bank financing to their aggregate current account deficit fell below 70 per cent for the first time on record, the eight countries that comprise this group still accounted for almost half of new bank lending to non-oil developing countries in 1981. Only 1 per cent of new bank lending went to the 41 countries classified as “low-income,” and bank flows financed only 5 per cent of their aggregate deficit. Bank lending to the low-income countries fell from a peak of almost $3 billion in 1979 to less than $1 billion in 1981, while their aggregate deficit rose by almost 40 per cent between these two years. Bank lending to this group in 1979 had, however, included borrowing of $1.2 billion by the People’s Republic of China, while bank claims on that country actually declined in 1981.

The most marked deceleration in bank lending has been experienced by the residual group of countries classified as other net oil importers. Bank lending to these countries fell by almost one third in 1981 to an amount below that recorded in 1978. Their current account deficit, however, more than tripled over this period. As a result, the share of the aggregate deficit financed by banking flows fell from almost 70 per cent in 1978 to about 20 per cent in 1980. This overall reduction in the importance of bank flows occurred despite the inclusion in this group of Chile, one of the countries to which the banks have been expanding their exposure most rapidly. Among the other net oil importers, the recent slowdown in borrowing from banks has been particularly marked for Morocco, the Philippines, and Romania.

While bank lending to non-oil developing countries rose only marginally in 1981, new medium-term bank credit commitments rose by one third, to $43 billion. As was noted above, however, commitments tend to move somewhat erratically on a year-to-year basis. The surge in 1981 was a rebound after a sharp decline in 1980; that decline, in turn, probably reflected the very high commitments secured in 1979 at the onset of the second round of oil price increases. Nevertheless, even if these fluctuations are smoothed, it is apparent that the expansion in total bank lending to non-oil developing countries has outpaced the growth in medium-term commitments. Given the sharp increase in the import bill of these countries since 1978, it is not surprising that short-term trade financing has played an important role in financing the large deficits of the past few years. In addition, some countries have turned increasingly to short-term borrowing for general balance of payments financing.

As would be expected from these developments, the ratio of undisbursed medium-term commitments to total bank claims on non-oil developing countries increased noticeably in 1979 and then fell again in 1980. That ratio, however, continued to decline in the first half of 1981, and by June of that year, the most recent date for which information is available, it had fallen to well below the 1978 ratio. The share of short-term claims, i.e., claims with a remaining maturity of less than one year, in total debt to banks has also risen steadily since 1979. As can be seen from Tables 40 and 41, however, both the relative decline in the stock of undisbursed medium-term commitments and the rise in short-term obligations primarily reflect developments with respect to the six largest debtors among the non-oil developing countries (Argentina, Brazil, Korea, Mexico, the Philippines, and Yugoslavia). For these six countries, the ratio of undisbursed commitments to total bank debt fell from 28 per cent in June 1978 to 16 per cent in June 1981, while the ratio of short-term to total bank claims rose from 35 per cent to 45 per cent. For all the remaining non-oil developing countries, the ratio of undisbursed commitments to total claims was virtually unchanged over this period, while the ratio of short-term to total debt actually declined.

This shift from medium-term to short-term finance by the major borrowers occurred at a time when, as discussed above, maturities on medium-term credits were shortening considerably. Taken together these phenomena could have important implications for the future borrowing requirements and debt service profiles of these countries. There were, however, indications at the end of 1981 and in the first quarter of 1982 that at least some of these countries are now trying to improve their debt profiles by seeking longer-term financing. Among these six large debtors, it should be noted that for Brazil and Yugoslavia the share of short-term debt in the total debt to banks, while rising, has remained well below the average for all countries.

Centrally Planned Economies

Banks’ claims on the centrally planned economies, including Romania,18 rose by nearly $5 billion in 1981 (Table 13). This increase was significantly smaller than the more than $7 billion recorded in each of 1979 and 1980 and the $9.3 billion increase in 1978. Compared with earlier years, there was a marked shift in the distribution of lending in 1981, with the Soviet Union accounting for almost all the increase in Eastern European countries’ debt to the banks. Over the preceding two years, Poland and the German Democratic Republic had been the major borrowers among the centrally planned economies, while the bank debt of the Soviet Union had not risen. For countries other than the Soviet Union, net flows did not decrease sharply until 1981, as countries continued to draw down amounts in the “pipeline” which were committed but not yet disbursed. However, as can be calculated from information presented in Table 42 publicized medium-term commitments to Eastern Europe continued to decline from $4.7 billion in 1979 to $2.7 billion in 1980 and to $1.5 billion in 1981. As a result of these developments, undrawn commitments, which had amounted to $13.7 billion at the end of June 1979, declined to $7.7 billion by June 1981. In this period, the ratio of undrawn commitments to outstanding debt was cut in half, to 13.5 per cent, a much lower figure than for other country groupings.

Table 13.Net Financing Flows to Eastern European Countries From Banks in BIS Reporting Area, 1976–811(In billions of U.S. dollars)
197619771978197919801981
Eastern Europe7.14.29.37.17.24.8
Albania
Bulgaria0.40.30.6–0.2–0.2–0.4
Czechoslovakia0.60.40.50.70.9–0.1
German Democratic Republic1.00.51.31.32.31.3
Hungary0.91.11.70.90.30.6
Poland1.51.22.63.00.90.5
Romania0.20.51.11.41.4–0.2
U.S.S.R.2.70.31.2–0.21.23.6
Residual0.30.30.30.30.4–0.5
Memorandum item:
Eastern Europe, excluding4.43.98.17.36.01.2
Sources: Bank for International Settlements, International Banking Developments (quarterly), various issues; and Fund staff estimates.

For the years 1976–78 net financing flows are measured by the change in the stock of bank claims in current U.S. dollars. For the years 1979–81, the Bank for International Settlements has published additional data, including those for the Eastern European countries as a group, which show the net financing flows (i.e., change in the stock of claims) once the non-U.S. dollar claims are valued using the same exchange rate vis-à-vis those currencies and the U.S. dollar at the beginning and end of each year. This exchange rate adjustment is particularly important in measuring flows in both 1980 and 1981. On an unadjusted basis the net flows were $3.9 billion and $1.0 billion in 1980 and 1981, respectively. The Bank for International Settlements publishes the exchange rate adjusted net financing flow data for the Eastern European countries as a group, but not for individual countries therein. This table presents exchange rate adjusted net bank financing flow data for the individual countries on the assumption that the currency composition of the bank debt of each country is the same as that for the group.

Sources: Bank for International Settlements, International Banking Developments (quarterly), various issues; and Fund staff estimates.

For the years 1976–78 net financing flows are measured by the change in the stock of bank claims in current U.S. dollars. For the years 1979–81, the Bank for International Settlements has published additional data, including those for the Eastern European countries as a group, which show the net financing flows (i.e., change in the stock of claims) once the non-U.S. dollar claims are valued using the same exchange rate vis-à-vis those currencies and the U.S. dollar at the beginning and end of each year. This exchange rate adjustment is particularly important in measuring flows in both 1980 and 1981. On an unadjusted basis the net flows were $3.9 billion and $1.0 billion in 1980 and 1981, respectively. The Bank for International Settlements publishes the exchange rate adjusted net financing flow data for the Eastern European countries as a group, but not for individual countries therein. This table presents exchange rate adjusted net bank financing flow data for the individual countries on the assumption that the currency composition of the bank debt of each country is the same as that for the group.

The growth of bank deposits from centrally planned economies has declined much more sharply than net lending to these countries in recent years. After rising by $5 billion in 1979, their deposits increased by only $1 billion in 1980 and there was a small decline in 1981. During the first half of 1981 the international bank deposits of the centrally planned economies had actually contracted by more than $5 billion, but this was almost offset by reconstitution in the second half (Table 9). The Soviet Union accounted for most of this within-year shift. Indicative of the increasing strain on external financing and the liquidity position of the Eastern European countries was the decline in the ratio of bank deposits to bank debt; this ratio declined from 28 per cent at the end of 1979 to 24 per cent by the end of 1981 (Table 44). Excluding the Soviet Union, the ratio was only 14.2 per cent at the end of the period; there was, however, considerable variation with regard to levels and changes in this ratio.

Developments of debt outstanding for Eastern European countries are shown in Table 14 and selected debt indicators are shown in Table 45. Those data indicate that the implicit net financing flows in convertible currencies from all sources were approximately $40 billion during the four years 1977–80, while net flows from banks in the BIS reporting area amounted to $28 billion or 70 per cent of the total. A large portion of the bank flows was generated by official agencies of industrial countries.

Table 14.Eastern Europe: Debt to Banks in BIS Reporting Area, 1975–81(In billions of U.S. dollars; and in per cent)
Debt OutstandingPercentage Growth in Bank Debt1
19751976–811976–781979–81
Eastern Europe21.620.730.012.0
Albania
Bulgaria1.66.224.7–9.5
Czechoslovakia0.350.688.220.5
German Democratic Republic2.627.433.621.4
Hungary2.224.542.88.6
Poland3.926.744.212.3
Romania0.933.540.626.8
U.S.S.R.210.112.319.014.6
Source: Bank for International Settlements, International Banking Development (quarterly).

Compound annual growth rates. Data for 1979–81 are exchange rate adjusted.

Includes a residual for Eastern Europe which is mainly banks of members of the Council for Mutual Economic Assistance (CMEA).

Source: Bank for International Settlements, International Banking Development (quarterly).

Compound annual growth rates. Data for 1979–81 are exchange rate adjusted.

Includes a residual for Eastern Europe which is mainly banks of members of the Council for Mutual Economic Assistance (CMEA).

Oil Exporting Countries

After expanding by about $40 billion a year in 1979 and 1980, the deposits of the oil exporting countries with the banks in the BIS reporting area increased by only $4 billion in 1981. Net bank lending to these countries, which had already fallen to a fairly low level in the preceding two years, dropped somewhat further to $4 billion in 1981. The oil exporters were, therefore, neither net suppliers nor net borrowers of funds from the banking system for the year as a whole. There was, moreover, a marked shift over 1981, as these countries moved from net suppliers of $8 billion in the first quarter to net borrowers of $5 billion in the fourth (Table 9). This reduction in the growth of deposits from oil exporting countries was, of course, associated with a substantial decline in their aggregate current account surplus, but the share of the banks in total placements by the oil exporters also fell.

The proportion of their funds which the oil exporters placed with the banks rose sharply during both major oil price increases and declined thereafter. This is equally true if deposits are related to the cash surplus available for disposition, i.e., the current account balance plus net borrowing (Table 15). The decline in deposits in 1981 was, however, much more abrupt than occurred after the first round of oil price increases. In that year the net placement of deposits was equal to only 5 per cent of the cash surplus, compared with about 30 per cent from 1975 to 1977 and a previous low of 14 per cent in 1978.

Table 15.Current Account Surpluses and Bank Deposits of Oil Exporting Countries, 1974–81(In billions of U.S. dollars; and in per cent)
19741975197619771978197919801981
Current account surplus6835403137011571
Plus: Oil sector capital transactions1–121–6–12–912
Net borrowing223810161078
Equals: Cash surplus available for disposition58394240217112381
Increase in deposits with banks in the BIS reporting area330141211337414
Increase in bank deposits as a per cent of current account surplus4440303510053366
Increase in bank deposits as a per cent of cash surplus523629281452335
Sources: Bank for International Settlements; International Monetary Fund, World Economic Outlook, Occasional Paper No. 9 (April 1982).

Changes in accounts receivable from oil exports and in net direct investment of foreign-owned oil companies.

Total net increase in external liabilities of the public and private sectors (including banks). Includes small amounts of official transfer receipts, inward non-oil direct investment capital, and other miscellaneous capital items. Excludes borrowing from other oil exporting countries.

For years after 1976, adjusted for valuation effects of exchange rate movements on end-of-year stocks.

Sources: Bank for International Settlements; International Monetary Fund, World Economic Outlook, Occasional Paper No. 9 (April 1982).

Changes in accounts receivable from oil exports and in net direct investment of foreign-owned oil companies.

Total net increase in external liabilities of the public and private sectors (including banks). Includes small amounts of official transfer receipts, inward non-oil direct investment capital, and other miscellaneous capital items. Excludes borrowing from other oil exporting countries.

For years after 1976, adjusted for valuation effects of exchange rate movements on end-of-year stocks.

To a certain extent, the large increase in bank deposits immediately after a major oil price rise probably reflects the fact that some of the oil exporting countries have an initial need to rebuild their cash positions, while others put funds in liquid form pending the identification of alternative investment outlets. This pattern is supported by the data on the identified investments by the oil exporters in the United States. In 1979 almost all such investment took the form of bank deposits or treasury bill purchases. In 1981, however, the oil exporters lowered their bank deposits in the United States and were net sellers of bills, while increasing by more than $15 billion their holdings of stocks, bonds, and other types of portfolio investment. In fact, longer-term investment in the United States by the oil exporters was somewhat higher last year than in 1980, despite the reduction in their current surplus.

Another factor which contributed to the relative decline in the role of banks in the recycling of oil surpluses over 1980 and 1981 was the greater recourse of official institutions in industrial countries to direct borrowing from the oil exporters. Also, it is likely that an increasing portion of the surplus of Middle Eastern oil exporters was being channeled through banks in that region. Such banks, which are not covered by the BIS reporting system, became a major force in the international syndicated credit market during 1981.

Apart from these factors, the distribution of the aggregate current surplus among different groups of oil exporting countries appears to explain an important part of the variation in the ratio of new bank depositing to the overall surplus. The Bank for International Settlements, while not providing a complete country analysis, does provide data on the combined deposits of four Middle Eastern countries–Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates. These four countries have had current account surpluses in each of the past eight years and have tended to seek longer-term investment outlets for their funds. Their total bank deposits at the end of 1981 were equal to only about 20 per cent of their cumulative surplus since 1973. The remaining oil exporting countries, taken as a group, tend to have sharp increases in both their surpluses and their bank deposits immediately after a marked upward movement in oil prices, but subsequently their rate of depositing with the banks declines or becomes negative as their surpluses contract or turn into deficits. In general, therefore, the larger the share of these four countries in the aggregate current surplus of the oil exporters, the smaller has been the relative role of depositing with international banks in the recycling process. That share was lowest in 1974 and 1979 as the current account positions of the other oil exporters strengthened very rapidly in the immediate wake of the oil price increases; in both of these years depositing with the international banks accounted for more than half of the disposition of the total cash surplus of the oil exporters. In both 1978 and 1981, on the other hand, the countries other than the four registered an aggregate deficit on current account; in both of these years there was almost no net increase in the deposits of oil exporting countries with the international banks.

This disaggregation of the oil exporters also appears to provide some explanation of the fact that, while their aggregate current surplus rose from $70 billion in 1979 to $115 billion in 1980, new depositing with the banks was only marginally higher in the latter year. The four countries accounted for almost all of the increase in the surplus. In 1981 the four continued to place about 20 per cent of their combined surplus with the banks, but the deposits of the remaining countries declined by about $15 billion.

During the first round of recycling, countries other than the four did not as a group move into deficit until 1978, while this time around they were already registering a deficit by 1981. It is, therefore, likely that bank lending to the oil exporters will expand much more rapidly in the near future than it did after 1974–75, although there was little evidence of this in 1981. Net lending to oil exporting countries in 1981 was only $4 billion, the lowest amount since 1974 and well below the $15 billion recorded in 1978. New medium-term commitments for the year as a whole at $5 billion were also no higher than in 1980 and only half those in 1978. Such commitments did, however, rise to about $2.5 billion in both the final quarter of 1981 and the first quarter of 1982.

Venezuela and Nigeria accounted for almost all of the net increase in bank claims on oil exporting countries in 1981; over the three years since 1978 fully 75 per cent of bank lending to the oil exporters has been taken up by Venezuela and another 20 per cent by Nigeria. In 1981 new commitments for Nigeria represented 34 per cent of total new commitments to the oil exporters, while another 25 per cent went to Venezuela. Venezuela has, however, relied heavily on shorter-term borrowing; in mid-1981 claims with a remaining maturity of less than one year accounted for fully 60 per cent of Venezuela’s debt to the banks, one of the highest ratios among all major borrowers.

Industrial Countries

The pattern of international bank lending to and funding in the industrial country markets is determined by a somewhat different complex of factors than those for bank transactions with nonindustrial countries. While domestic policies adopted in response to balance of payments developments may have an important impact on flows through the banking markets, balance of payments considerations are less likely to be an explicit motivating factor in banking transactions with industrial country clients. The volume of international bank lending to these countries reflects, instead, the growth of world trade, the increasing integration of industrial country capital markets, and the overall strength of credit demand, as well as the tightness or ease of domestic financial conditions. In addition, the financial markets of the industrial countries are the arena in which potential borrowers, from both industrial and nonindustrial countries, compete for funds, and the international operations of the banks provide one of the most important channels through which the resultant pattern of net flows is effected.

The net financing flows to the rest of the world effected by the banks in the BIS reporting area are summarized in Table 16. Net domestic funding is equal to the difference between the increase in the total international assets of the reporting banks and their international liabilities and indicates the extent to which the banks in the various reporting countries finance their international operations with funds raised in their own domestic markets or, alternatively, finance domestic operations by net borrowing from abroad. This concept, however, does not capture the full extent to which the banks channel funds between the reporting area and the rest of the world, as, for example, a deposit by a U.S. corporation with a bank in London which was on-lent to a Brazilian borrower would show up in the statistics as an equal increase in the bank’s foreign claims and liabilities. This second type of transaction is shown in Table 16 as the difference between the banks’ foreign liabilities to other reporting area countries and their claims on those countries.

Table 16.Summary of Transactions of Banks in BIS Reporting Area with Industrial and Nonindustrial Countries, 1979–811(Exchange rate adjusted flows in billions of U.S. dollars)
197919801981
Transactions within BIS reporting area
Net domestic funding of international operations–46–129
Plus increase in foreign liabilities2 to other reporting countries144156156
Minus increase in foreign claims2 on other reporting countries–113–136–143
Equals net financing of countries outside reporting area–151942
Transactions with offshore centers–106–5
Increase in claims on offshore centers323350
Minus increase in liabilities to offshore centers–42–27–55
Transactions with other industrial countries–265
Increase in claims on other industrial countries589
Minus increase in liabilities to other industrial countries–7–2–4
Transactions with nonindustrial countries3–3742
Increase in claims on nonindustrial countries556465
Minus increase in liabilities to nonindustrial countries–59–57–24
Sources: Bank for International Settlements; and Fund staff estimates.

Adjusted for valuation effects of exchange rate movements on end-of-period stocks.

Includes interbank transactions.

Includes international organizations and unallocated.

Sources: Bank for International Settlements; and Fund staff estimates.

Adjusted for valuation effects of exchange rate movements on end-of-period stocks.

Includes interbank transactions.

Includes international organizations and unallocated.

In 1979 banks in the BIS reporting area increased their foreign liabilities by $46 billion more than the growth of their foreign claims, with banks in the United States, Canada, and Europe all reporting net foreign borrowing from abroad. Most of this $46 billion was, however, funded in the industrial country markets themselves, as cross-border depositing by residents in those countries increased substantially. Overall, the countries of the reporting area borrowed $15 billion, net, from the rest of the world in 1979, $10 billion of which came through offshore banking centers and may have been funded primarily through deposits from industrial countries.

In the following year, a $19 billion net outflow of funds from the reporting area to the rest of the world was effected through international banking transactions, as an increase in international lending to reporting area residents was more than offset by a reduction in the foreign funding of domestic operations by the banks in these countries, and in 1981, $42 billion was channeled from the reporting area to the rest of the world by the banks. Between 1979 and 1981 there was, therefore, a shift of $57 billion in the net position of the reporting area vis-à-vis the rest of the world.

The contribution of individual countries within the reporting area to this overall pattern of developments is discussed below. Country data on net domestic funding of foreign operations are presented in Tables 17, 18, and 33, while information on cross-border bank claims on and liabilities to nonbank residents of the individual reporting countries is given in Tables 18, 36, and 37. Data on interbank operations are not, however, available on a disaggregated basis.

Table 17.Gross Foreign Claims, Liabilities, and Net Position of Banks in BIS Reporting Area, 1979–811(In billions of U.S. dollars)
Exchange Rate Adjusted Changes
1981Amounts Out-standing at End of 1981
197919801981First quarter Firstquarter SecondThird quarterFourth quarter
Claims205.5241.6267.654.340.671.4101.31,542.0
Banks in the European reporting area150.9158.7136.031.718.130.655.6992.3
Banks in Canada3.110.12.7–1.43.11.4–0.437.9
Banks in Japan13.418.420.810.1–2.812.60.984.6
Banks in the United States17.140.776.57.414.813.041.3255.4
Of which: International Banking Facilities61.361.361.3
Offshore branches of U.S. banks21.013.731.66.57.413.83.9171.8
Liabilities251.9242.6238.640.736.169.592.31,523.0
Banks in the European reporting area172.3179.0127.527.69.526.763.71,008.7
Banks in Canada7.711.018.03.79.53.21.661.4
Banks in Japan12.628.921.67.90.911.01.8100.4
Banks in the United States38.09.438.0–5.78.013.422.3176.7
Of which: International Banking Facilities46.446.446.4
Offshore branches of U.S. banks21.314.333.57.28.215.22.9175.8
Net domestic funding–46.4–1.029.013.64.51.99.019.0
Banks in the European reporting area–21.4–20.38.54.18.63.9–8.1–16.4
Banks in Canada–4.6–0.9–15.3–5.1–6.4–1.8–2.0–23.5
Banks in Japan0.8–10.5–0.82.2–3.71.6–0.9–15.8
Banks in the United States–20.931.338.513.16.8–0.419.078.7
Of which: International Banking Facilities14.914.914.9
Offshore branches of U.S. banks–0.3–0.6–1.9–0.7–0.8–1.41.0–4.0
Source: Bank for International Settlements.

Data on gross claims and liabilities include redepositing among banks in the BIS reporting area.

Source: Bank for International Settlements.

Data on gross claims and liabilities include redepositing among banks in the BIS reporting area.

Table 18.Summary of Net Foreign Transactions by Banks and Nonbanks in BIS Reporting Area, 19811(In billions of U.S. dollars)
Change in Foreign Position of Banks Located in Reporting CountryTransactions of Nonbank Residents with Foreign Banks
DepositsBorrowingNet
European reporting area8.59.725.8–16.1
Belgium-Luxembourg1.21.72.9–1.2
France–5.70.41.6–1.2
Germany, Federal Republic of6.11.210.2–9.0
Italy2.30.57.0–6.5
Netherlands2.81.10.60.5
Switzerland2.53.7–0.23.9
United Kingdom1.10.80.50.3
Other–1.80.43.2–2.8
Canada–15.34.91.73.2
Japan–0.80.2–1.31.5
United States38.531.25.525.7
Offshore branches of U.S. banks–1.9
Total29.045.831.614.2
Sources: Tables 33, 36, and 37.

Adjusted for valuation effects of exchange rate movements on end-of-period stocks.

Sources: Tables 33, 36, and 37.

Adjusted for valuation effects of exchange rate movements on end-of-period stocks.

Changes in the pattern of banking flows into and out of the United States, as a result both of the operations of banks in the United States and of the transactions of U.S. residents with banks abroad, were the main factor underlying the shift in the overall position of the BIS reporting area from being a net borrower from the rest of the world in 1979 to being the primary supplier of funds to the international banking markets in 1981.

Between 1979 and 1981 there was a $60 billion swing in the direction of net flows through banks in the United States, as these banks moved from being net foreign borrowers of $21 billion in 1979 to being net lenders of $31 billion in 1980 and of almost $39 billion in 1981.19 Taking also into account the transactions of U.S. residents with foreign banks reduces the net flow into the United States in 1979, while substantially increasing the net outflow via the international banking system in 1981. In 1979, there appears to have been substantial “round-tripping” of funds as direct deposits of U.S. residents with foreign branches of U.S. banks increased very rapidly, while these foreign branches in turn lent $17 billion, net, to their U.S. parents. In 1980 the growth of foreign deposits of U.S. residents slowed and foreign branches of U.S. banks, rather than serving as conduits of funds into the United States, used both these U.S. deposits and substantial borrowings from U.S. parent banks to finance a very rapid growth in lending to both bank and nonbank borrowers outside the United States.

After increasing by $11 billion in 1979 and $9 billion in 1980, foreign deposits of U.S. residents increased sharply by $31 billion in 1981, an expansion of almost 60 per cent in one year. Most of these deposits were placed with foreign branches of U.S. banks. Recorded lending by banks outside the United States, including foreign branches of U.S. banks, to U.S. residents rose to $5 billion in 1981, an amount which is high by historical standards but dwarfed by the surge in deposits. As a result, net outflows in 1981 owing to direct transactions between U.S. residents and banks outside the United States reached $26 billion. These transactions, taken together with the $38 billion net outflow effected by banks in the United States, brought the total net outflow from the United States via the international banking system in 1981 to $64 billion, or more than the total net flow of funds from the BIS reporting area to the rest of the world.

The large net inflow of funds through banks in the United States which occurred in 1979, and the associated round-tripping through foreign branches, can be traced directly to policy measures taken in the latter part of

In October 1979 an 8 per cent marginal reserve requirement was imposed on all managed liabilities, including both net foreign borrowing and large domestic time deposits. This did not, however, reduce the relative cost advantage of foreign funding, and banks in the United States continued to be net borrowers from abroad until March 1980 when direct controls were imposed on domestic lending. Foreign lending by banks in the United States increased very substantially in the second quarter of 1980 and, although the credit control program was short lived and the marginal reserve requirement on managed liabilities was lifted in July 1980, banks in the United States have continued to be net lenders in each subsequent quarter. Since November 1980 the Federal Reserve System has been phasing in a new schedule of reserve requirements. The reserve requirement on non-personal time deposits is being phased down to 3 per cent, while that on net foreign lending is being phased up to 3 per cent.

While these shifts in the relative costs of domestic and foreign funding probably accounted for most of the substantial net inflows in 1979 and the subsequent unwinding of those operations can explain part of the net outflow in 1980 and 1981, such factors alone cannot account for the more than $100 billion net outflow from the United States via the international banking system that has taken place over the last two years.

In analyzing these banking flows, it must be remembered that the United States recorded only a small surplus on current account over this period, that surplus rising from $3.7 billion in 1980 to $6.6 billion in 1981. The counterpart to these banking flows is to be found, therefore, not in increased net savings by the residents of the United States, but rather in large net capital inflows into the United States through other channels. As was noted above, identified portfolio investment in the United States by the oil exporting countries continued at a high rate in both 1980 and 1981.

Much of the large capital inflow into the United States through channels other than the banking system shows up as errors and omissions in the U.S. balance of payments. For the last two years, the “statistical discrepancy” in the United States payments accounts shows a net inflow of $54 billion, an amount equal to more than half of the outflows through the banking system during that time.

Looked at from the same perspective as the preceding discussion on the United States, that is, taking into account both transactions of banks in a given country with the rest of the world and transactions of residents of that country with banks abroad, the European reporting area of the Bank for International Settlements was a net borrower of about $8 billion in 1981, Canada borrowed $12 billion, while Japan supplied about $1 billion, net, to the markets (Table 18). Apart from the United States, only Switzerland ($6 billion) and the Netherlands ($3 billion) were significant net suppliers of funds in 1981. In addition to Canada, France ($7 billion), Italy ($4 billion), and the Federal Republic of Germany ($3 billion) were the largest net borrowers.

In 1981 net foreign borrowing by banks in Canada amounted to about $15 billion, while in 1980 the figure was only $1 billion. In part this shift reflected the behavior of Canadian nonbanks, which had switched from being net borrowers of over $2 billion from banks outside Canada in 1980 to being net depositors of $3 billion with banks abroad in 1981. In February 1981 reserve requirements were imposed on resident foreign currency deposits in Canada. This led to some $4 billion in such deposits being shifted to the offices abroad of Canadian banks, which in turn redeposited the funds in Canada, accounting for a substantial part of the net inflow through banks. Most of the remaining inflow through banks in Canada represented funding of foreign currency loans to residents, the stock of which doubled in 1981, largely on account of corporate takeover activity.

Japan, which had been a major net borrower from international banking markets in 1980, became a small net supplier of funds in 1981. While decelerating somewhat over the past few years, foreign lending by banks in Japan has continued at a rapid pace, with claims on foreigners increasing by one third in 1981. The shift that occurred last year resulted, therefore, entirely from sharply reduced borrowing from abroad. In 1980 foreign deposits with banks in Japan, including interbank deposits, had increased by $29 billion, or almost 60 per cent, while claims of banks abroad on Japanese residents had increased sharply by almost $9 billion, a fivefold increase. The large inflows to Japan in 1980 reflected a number of measures which were introduced to encourage capital inflows. These included increases in the foreign currency swap limits on banks, the removal of ceilings on the interest rates that banks were permitted to pay on yen deposits from foreigners, and the termination of special programs under which the Japanese authorities had provided foreign exchange for trade financing. In 1981 the pace of expansion of the foreign liabilities of banks in Japan slowed to 27 per cent, while Japanese residents actually reduced their debt to banks abroad. Deposits abroad by Japanese residents are minimal.

Foreign lending by banks in the European reporting area of the Bank for International Settlements, including redepositing among banks, dropped from $159 billion in 1980 to $136 billion in 1981, representing a slowdown in growth from 21 per cent to 16 per cent. The increase in foreign liabilities of banks in the reporting area, however, dropped even more, from $179 billion in 1980 to $128 billion in 1981, and on a net basis the banks in these countries shifted from being borrowers of $20 billion in 1980 to being lenders of $8.5 billion last year. This marked decline in foreign depositing with banks in Europe is a direct reflection of the reduction in bank depositing by oil exporting countries from $41 billion in 1980 to $4 billion in 1981. The oil exporters actually reduced their deposits with banks in the United States marginally in both 1980 and 1981, so most of the shift between these two years was absorbed by banks in Europe. The decline was particularly marked for banks outside the United Kingdom.

The greater slowdown in liabilities than in claims is reflected in the data for most of the countries within the reporting area. While banks in most of these countries were net borrowers in 1980, in 1981 only the banks in France, Sweden, and Belgium borrowed significantly more abroad than they lent. The shift in net position between the two years was particularly marked for banks in Italy, the Netherlands, and the United Kingdom.

In both 1980 and 1981, residents of the BIS European reporting area borrowed substantial amounts from banks outside their home country (Table 36). Nonbanks in the Federal Republic of Germany and Italy were the most important borrowers, accounting for about half of the increase in cross-border claims on European residents in 1980 and of almost two thirds in 1981. In both these countries substantial foreign borrowing has been induced by domestic monetary and credit measures. In February 1981 the Bundesbank imposed a special lombard rate of 12 per cent in place of the regular lombard rate of 9 per cent. Foreign borrowing by German residents, much of which is apparently from subsidiaries of German banks in Luxembourg, surged in the first three quarters of 1981 but came to a standstill in the fourth quarter, when the special lombard rate was lowered from 12 per cent to 10½ per cent.

The placement of deposits by European residents with banks outside the home country slowed substantially last year (Table 37). A marked decline in foreign depositing in both foreign and domestic currency by residents of the United Kingdom accounted for most of this deceleration, although the growth of foreign currency deposits of German residents also slowed. Foreign deposits of U.K. residents grew rapidly in 1980, following the abolition of exchange controls in October 1979. Overall, residents of the BIS European reporting area borrowed $26 billion from banks outside their home countries in 1981, while expanding their deposits with such banks by only $10 billion.

Taken together, these transactions of nonbank residents with foreign banks and the net domestic funding of foreign operations by banks in the BIS European reporting area indicate that these countries as a group were net borrowers of about $8 billion in 1981.

Alternative Measures of International Bank Claims

In the foregoing subsections, the discussion of banking flows has been based on data which exclude redepositing among banks within the BIS reporting area. The Bank for International Settlements also provides data on gross claims of banks, i.e., including redepositing among banks. This series is presented in Table 19, as are two other series on gross foreign claims which include banks outside the BIS reporting area. These latter two series are not, however, available on an exchange rate adjusted basis, and all the data presented in Table 19 are in current U.S. dollars.

Table 19.Gross Foreign Claims of Banks Inside and Outside BIS Reporting Area, 1976–811(In billions of U.S. dollars; and in per cent)
197619771978197919801981
Gross foreign claims of banks in BIS reporting area5486908931,1111,3221,542
Growth in per cent223.919.931.124.419.016.7
Eurocurrency market3305385502640751840
Growth in per cent18.222.630.427.517.311.9
Other243305391471571702
Growth in per cent232.116.532.120.521.222.7
Gross claims of banks in certain offshore centers outside BIS reporting area477107135175236
Growth in per cent39.026.228.134.9
Gross foreign claims of deposit money banks, IFS series6898641,1341,4331,7412,098
Growth in per cent22.825.531.326.321.520.5
Memorandum items:
Net foreign claims of banks in BIS reporting area330430535665810940
Growth in per cent226.922.725.624.321.816.0
Redepositing among banks in BIS reporting area218260358446512602
Growth in per cent219.815.640.024.614.817.6
Sources: Bank for International Settlements; and International Monetary Fund, International Financial Statistics (IFS).

Gross claims include, and net claims exclude, redepositing among banks within the BIS reporting area.

Growth rates do not always correspond to stock figures because of breaks in the data series.

Foreign currency claims of banks in Europe.

Claims of non-U.S. banks in the Bahamas, the Cayman Islands, Hong Kong, Panama, and Singapore, and claims of all banks in Bahrain and the Netherlands Antilles.

Sources: Bank for International Settlements; and International Monetary Fund, International Financial Statistics (IFS).

Gross claims include, and net claims exclude, redepositing among banks within the BIS reporting area.

Growth rates do not always correspond to stock figures because of breaks in the data series.

Foreign currency claims of banks in Europe.

Claims of non-U.S. banks in the Bahamas, the Cayman Islands, Hong Kong, Panama, and Singapore, and claims of all banks in Bahrain and the Netherlands Antilles.

In four of the past six years, interbank claims of banks in the BIS reporting area grew at a rate less than or equal to that of claims on final borrowers. In both 1978 and 1981, however, gross claims rose faster than net claims. That difference was substantial in 1978, when the growth of interbank claims appears to have reflected turbulance in exchange markets in the latter part of the year. In 1981, however, the establishment of International Banking Facilities in the United States was the major factor contributing to the acceleration in the growth of interbank claims (see footnote 19, page 37).

The only offshore banks included in the reporting area for the BIS quarterly reports are the branches of U.S. banks in the Bahamas, the Cayman Islands, Hong Kong, Panama, and Singapore. In addition, the Bank for International Settlements provides estimates of the gross claims of other banks in these five offshore centers and of all banks in Bahrain and the Netherlands Antilles. As can be seen from Table 19, the gross claims of these other offshore banks have been increasing much more rapidly than the claims of banks in the BIS reporting area over the past four years. Although part of this rapid growth in offshore centers may represent interbank transactions, data for the first half of 1981 indicate that direct claims of these offshore banks on Latin America and Asia have been expanding strongly. Affiliates of Japanese banks have played a major role in the recent expansion of these offshore centers.

Despite the rapid growth of these offshore centers outside the BIS reporting area, it is unlikely that their exclusion from the BIS quarterly reporting area results in a substantial underestimation of net international lending. Much of the activity of these offshore centers represents on-lending of funds obtained from reporting area banks and is, therefore, already captured in the BIS net claims series. As these flows are reported in the BIS data as claims on the offshore centers, rather than claims on the final borrowers, it is likely that the quarterly BIS series understates the recent growth in lending to those regions, i.e., Latin America and Asia, which have been the main recipients of these offshore funds.20

A more global figure on foreign claims of banks is published in International Financial Statistics (IFS), a monthly publication of the International Monetary Fund. In addition to banks in industrial countries and offshore centers, this series includes the foreign claims of deposit money banks in many developing country members of the Fund. To the extent that the foreign claims of banks in developing countries consist of deposits with banks in the BIS reporting area, any impact of these transactions on net international lending to final borrowers is already captured in the BIS statistics. Banks in some developing countries are, however, significant international lenders. They provide trade credit and participate in syndications. On occasion, they also provide short-term balance of payments assistance to other developing countries.

The growth of this broader measure has generally outpaced that of the gross claims of banks in the BIS reporting area. This reflects both the strong growth of the offshore centers and the rapid expansion of foreign claims of banks in certain developing countries, particularly the oil exporting countries.

Although the BIS data are not comprehensive, they do appear to cover a large part of final lending activity by banks. In addition, the Bank for International Settlements is the only source that provides detailed information, country by country, on the destination of lending and the sources of international banking funds. The major effort begun by the Bank for International Settlements in recent years to provide many of the aggregate series on an exchange rate adjusted basis has, moreover, added greatly to the series’ usefulness.

The Bank for International Settlements was the innovator in the field of international banking statistics when it began collecting data on the Eurodollar market in the early 1960s. Although the scope of both international banking activity and the BIS statistics has broadened considerably since that time, the narrowly defined Eurocurrency market, which is limited to the cross-border foreign currency claims and liabilities of banks in Europe, still accounts for over half of the international claims in the reporting area. In 1981, however, the growth of the Eurocurrency market slowed considerably compared with the overall expansion of banks’ gross claims both within and outside the reporting area. While the very slow growth in current U.S. dollar terms (Table 19) also reflects the appreciation of that currency, even on an exchange rate adjusted basis the Eurocurrency markets grew more slowly than the total in 1981, as banks in the United States and Japan played an increasingly active role.

Lending by Nationality of Banks

In establishing their international lending programs, banks normally consider their operations on a consolidated basis, that is, international lending by their branches abroad and, to a large extent, their subsidiaries abroad are considered to be an integral part of their operations.21 Discussions with banks like those the Fund staff team carried out in preparation for this report thus tend to focus on consolidated lending. This makes possible the kinds of generalization about the behavior of banks based in different countries which appear in the main text.22

Until recently, however, few countries published data on the consolidated international activities of their banks. Virtually the only information available came from “league” tables setting out banks’ participation in syndicated credits, but these provided only very approximate indicators of actual lending, as data were available only on a commitment basis and did not precisely indicate each bank’s share in particular credits. BIS data, which are based on a “booking center” concept, are for most countries only a very rough guide to the international lending by banks of particular nationalities, as a large part of most banks’ international transactions are typically booked abroad. Consolidated data would be useful both to provide a more solid basis for qualitative judgments, such as those appearing in the main text, and to examine the influence of bank supervision and regulation and other factors that affect banks’ behavior according to their country of origin.

The movement toward supervision of banks on a consolidated basis has, as a counterpart, a movement toward compilation of data on a consolidated basis. Four of the major capital market countries now make some such data available. Canada, the United Kingdom, and the United States have published such data, while the Japanese Ministry of Finance has provided data on one major component–medium- and long-term lending. Annual growth rates of consolidated bank claims appear in Table 20. While definitions vary from country to country, the data provide a useful guide to changes in bank behavior from year to year.

Table 20.Growth Rates of International Claims of Banks Headquartered in Major Capital Market Countries, 1978–811(In per cent)
1978197919801981
Consolidated series
Canada2202920
Of which: Claims on nonbanks223668
Japan3136611724
United Kingdom18425430518
Of which: Claims on nonbanks23
United States612131616
Of which: Claims on nonbanks391619
Unconsolidated series7
France342516
Germany, Federal Republic of251362
Switzerland351716
Source: Fund staff estimates, based on data indicated in footnotes.

Data series are not precisely comparable over time or across countries and data are not adjusted for exchange rate changes.

Canadian chartered bank claims on nonresidents of Canada, booked either in Canada or at branches, agencies, and wholly owned subsidiaries outside Canada. Excludes local claims of bank offices abroad (Bank of Canada).

Medium-term and long-term claims only (Japanese Ministry of Finance).

Unconsolidated data for banks in the United Kingdom, excluding branches of foreign banks (Bank of England, Quarterly Bulletin).

Consolidated external claims of U.K.-registered banks, including branches and subsidiaries worldwide. Excludes local claims in local currency of bank offices abroad (Bank of England, Quarterly Bulletin).

Consolidated cross-border and nonlocal currency claims of large U.S. banking organizations (Federal Financial Institutions Examinations Council–Country Exposure Lending Survey).

Includes all bank claims in countries listed (Bank for International Settlements).

Source: Fund staff estimates, based on data indicated in footnotes.

Data series are not precisely comparable over time or across countries and data are not adjusted for exchange rate changes.

Canadian chartered bank claims on nonresidents of Canada, booked either in Canada or at branches, agencies, and wholly owned subsidiaries outside Canada. Excludes local claims of bank offices abroad (Bank of Canada).

Medium-term and long-term claims only (Japanese Ministry of Finance).

Unconsolidated data for banks in the United Kingdom, excluding branches of foreign banks (Bank of England, Quarterly Bulletin).

Consolidated external claims of U.K.-registered banks, including branches and subsidiaries worldwide. Excludes local claims in local currency of bank offices abroad (Bank of England, Quarterly Bulletin).

Consolidated cross-border and nonlocal currency claims of large U.S. banking organizations (Federal Financial Institutions Examinations Council–Country Exposure Lending Survey).

Includes all bank claims in countries listed (Bank for International Settlements).

Interbank operations are normally considered to fall within the “treasury” function of banks and outside the lending function. Ideally, data on international lending should exclude such treasury operations, as the Bank for International Settlements tries to do in its estimate of net international bank credit. Canadian and U.S. data (and, more recently, U.K. data) distinguish between claims on banks and claims on nonbanks.

The acceleration in lending in 1980 and 1981 by banks based in the United States, particularly to nonbanks, is clearly in evidence in Table 20, as is the sharp slowdown in lending by Japanese banks in 1980 and the moderate recovery in 1981. Also in evidence is the strong expansion in 1980 by Canadian and U.K. banks. In 1981 international lending by Canadian and U.K. banks slowed, but the slow growth was concentrated in interbank operations. In Canada claims on banks actually declined, in part reflecting the constraints on their overall activity which Canadian banks were experiencing because of their strained capital-asset positions. Given those strains, Canadian banks chose to concentrate their activity in the relatively more profitable business of lending to nonbanks.

Consolidated data are not available for France, the Federal Republic of Germany, or Switzerland, but in all three cases lending by banks located in those countries slowed sharply between 1978 and 1981. In France and, to a lesser extent, in Switzerland, international lending to nonbanks tends to be booked domestically, so that the nonconsolidated series to some extent provides reasonable approximations of bank behavior. For Germany that is less true, but the figures are nonetheless consistent with what is known about recent bank behavior.23

Econometric Analysis of Growth of International Bank Assets

As discussed in Appendix IV of last year’s paper, one way of analyzing the growth of the gross international assets of banks is to utilize an econometric model which relates the quarterly growth rate of gross external assets (GRQ) to the quarterly growth of world imports expressed in dollars (GRWIMP), the quarterly growth rate of the sum of the dollar value of the GNP of the United States, Canada, Japan, the Federal Republic of Germany, and the United Kingdom (GRSUM), and the quarterly growth rate in the ratio of the sum of the absolute values of the trade deficits and surpluses of 56 countries to world imports (GRIMB).24

Putting the actual value of the explanatory variables for 1981 into the equation implied an annual growth in gross external assets of deposit banks of 15 per cent during 1981, following a 20 per cent growth in 1980. The actual outcome was 16.7 per cent.

The current World Economic Outlook forecasts a recovery in 1982 in the growth of world imports (measured in dollars) from–1.5 per cent in 1981 to 4.6 per cent in 1982.25 The annual growth rate of the total nominal GNP measured in U.S. dollars of the major industrial countries is expected to rise from 4.9 per cent in 1981 to 5.8 per cent in 1982. The payments imbalance ratio, which showed a 3.6 per cent decline in 1981, is expected to decline by 15.4 per cent in 1982. The recovery of world trade and GNP growth will stimulate the growth of gross external assets, but the continued decline in the surpluses of the oil exporting countries will tend to slow the expansion. The net result of these offsetting forces is that the projected growth of gross international bank assets in 1982 is 15.1 per cent. Given the estimated parameters of the model, this projected rate of growth of bank assets would be most adversely affected by an unexpected slowdown in the growth of the U.S. dollar value of the GNP of the five industrial countries. A 1 percentage point decline in GRSUM would lower the projected growth of international bank assets by 0.8 percentage point. Changes in trade imbalances or the growth of world trade have a much smaller impact on the projected growth rate.

Details of current account positions and private market financing for country groups by Fund classification are provided in Table 29.

The banking data presented in this section are derived primarily from information presented in the BIS quarterly publication, International Banking Developments. Unless otherwise indicated, data exclude redepositing among reporting banks and flows are adjusted for the impact of exchange rate changes on end-of-period stocks. For details, see Tables 30 to 38.

The BIS reporting area comprises banks in the Group of Ten countries, Austria, Denmark, Ireland, and Switzerland, as well as the branches of U.S. banks in the Bahamas, the Cayman Islands, Hong Kong, Panama, and Singapore.

Unless otherwise indicated, claims on and liabilities to the industrial countries include claims on and liabilities to the offshore banking centers. See footnote 3, Table 9.

In other sections of this paper Romania is included in the totals for non-oil developing countries.

The year-to-year movements in the gross foreign claims and liabilities of banks in the United States, as shown in Table 17, are dominated by changes in interbank claims and deposits, particularly with the foreign branches of U.S. banks. The marked acceleration in claims and slowdown in liabilities recorded in 1980 primarily reflects the fact that U.S. banks reduced their claims on and increased their liabilities to their foreign branches in 1979, while in 1980 they increased their claims on and reduced their liabilities to foreign branches. From an economic viewpoint it is of little interest whether the net flows between the parent banks and offshore branches take the form of changes in claims or changes in liabilities. Similarly, the growth of gross claims and liabilities in 1981 is inflated by the introduction of International Banking Facilities, as U.S. banks apparently transferred substantial assets, but not deposits, from their foreign branches to the International Banking Facilities, such transactions showing up in the statistics as an increase in the assets of the International Banking Facilities, an increase in liabilities to the foreign branch, and no change in the total foreign assets and liabilities of the foreign branch.

More comprehensive coverage of claims of banks in the offshore centers is provided by the semiannual BIS publication, The Maturity Distribution of International Bank Lending. These data, however, are not available on an exchange rate adjusted basis and are published with a longer lag than the quarterly series.

One frequent exception is local lending in local currencies by subsidiaries abroad.

See pages 4 and 22 above.

In all three countries, exchange rate changes exaggerated the swing. In 1978 and, to a much lesser extent, in 1979, the increasing value of the local currency in terms of the U.S. dollar meant that the dollar value of claims in domestic currency overstated the increase in claims, while in 1980 and 1981 the opposite was true. Even with these adjustments, however, a slowdown clearly occurred over the period. Similarly, the growth of claims of Japanese banks is overstated to some extent for 1978, understated in 1979, overstated in 1980, and slightly understated in 1981. For the United Kingdom and Canada exchange rate variations have had a much smaller impact on the data.

For the period from the second quarter of 1970 through the fourth quarter of 1979, the ordinary least-squares estimates of this relationship are

GRQ = α0 + α1 GRWIMP + α2 GRSUM + α3 GRIMB + α4 HERS + α5 Q4

α0α1α2α3α4α5
Coefficient1.480.170.780.13–3.605.40
t–value1.742.703.364.55–1.705.50
D-W = 1.91R2 = 0.74

Updating the sample through the fourth quarter of 1980 yields

α0α1α2α3α4α5
Coefficient2.270.160.570.10–4.595.87
t–value2.312.162.112.87–1.705.03
D-W = 2.31R2 = 0.67

HERS = dummy variable with one in third quarter of 1974 to represent aftermath of collapse of the Herstatt Bank.

Q4 = fourth-quarter dummy.

See 1982 World Economic Outlook, Table 8, p. 149.

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