III International Bank Lending in 1982
- John Lipsky, Peter Keller, Donald Mathieson, and Richard Williams
- Published Date:
- July 1983
During 1982, financial market disturbances and depressed activity levels in industrial countries interacted with declining oil production to fundamentally alter the growth and distribution of international lending. This section briefly reviews some of the events in 1982, such as the decline of world trade, the slowing of international inflation, and other macroeconomic developments that resulted in the reduction in the current account imbalances of the major country groups and an altered environment for international lending during the year.20
The dominant feature of the international economy during 1982 was the continuing worldwide recession that was evident in measured changes in trade, output, and expenditure. The U.S. dollar value of world imports, which had grown at an average annual rate of 16 percent during 1975–80, declined by 0.1 percent in 1981 and by 6.4 percent in 1982 (Table 2). In contrast to 1981, when the decline in the U.S. dollar value of world trade primarily reflected the appreciation of the U.S. dollar relative to other major currencies, the 1982 reduction in the nominal value of world trade also encompassed a 2.5 percent reduction in volume. This decline in international trade coincided with reduced trade financing from the international banking system.
For the first time since 1975, the real GNP of the industrial countries declined in 1982, albeit by only 0.3 percent (Table 2). The level of real gross fixed investment shrank for the third consecutive year in the industrial countries. The weighted average rate of output growth in the non-oil developing countries also fell from approximately 5 percent per annum in 1979 and 1980 to only 1.4 percent in 1982. Although some countries had escaped the effects of the world recession during 1981, the downturn in output and world trade had an impact on almost all economies during 1982.
The sum of identified current account deficits for all deficit countries declined from $165 billion in 1981 to $147 billion in 1982, which represented the first decline in the global current account deficits since 1976.21 This decline in the total of current account deficits occurred despite the increase in the current account deficits of the seven largest industrial countries from $15 billion to $17 billion between 1981 and 1982, although the current account positions of some oil exporting countries moved from a surplus to a deficit. However, the deficits of other countries, including the non-oil developing countries, declined from $150 billion in 1981 to $130 billion in 1982.
Placements of bank deposits and movements of inter-national reserves were strongly affected by the changes in the respective current account positions of the oil exporting countries and the non-oil developing countries. The aggregate current account of the oil exporting countries swung from surpluses of $114 billion in 1980 and $65 billion in 1981 to a deficit of $2 billion in 1982. Over this period, their deposit placements with banks fell from $41 billion in 1980 to $5 billion in 1981, and changed to a withdrawal of $19 billion in deposits in 1982. Over the same period there was a significant increase in international borrowing from banks by some oil exporting countries. As a result of these developments the oil exporting countries, which were a major source of funds to international banks in 1980, became the largest net taker of funds in 1982. Despite the stagnation of their export markets, non-oil developing countries as a group reduced their combined current account deficit partly because of sharply diminished access to international financial markets. Notwithstanding this adjustment on current account, the non-oil developing countries drew down their international reserve holdings by $7 billion in 1982. The reserve holdings of these countries previously had increased in every year since 1976.
These developments in output, trade, and current account coincided with changes in inflation, interest rates, and monetary growth. In the industrial countries, inflation, as measured by the change in the GNP deflator, fell from 8.6 percent in 1981 to 7.2 percent in 1982. This decline in inflation reflected a variety of factors, including the lower level of real activity and the presence of relatively more restrictive financial policies in many of the major industrial countries during 1980–82. Nominal interest rates, which had been historically high in many countries since late 1979, declined substantially, especially in the second half of 1982. This reflected, in part, the lower rate of inflation, a decline in the level of real activity, and a modest acceleration of the overall rate of monetary growth in the industrial countries (for broad money, from 8 percent in 1981 to 11 percent in 1982). However, since the decline in nominal interest rates was more or less in line with the reduction in the rate of inflation, real interest rates (calculated on an ex post basis) remained historically high throughout the year (Table 40). For example, while the U.S. rate of inflation (as measured by the change in the GNP deflator) fell from 9 percent to 6 percent between 1981 and 1982, the three-month Eurodollar deposit rate declined from 17 to 13 percent. The ex post real return on these deposits thus declined only slightly. High real interest rates have been evident in most financial markets since 1980. The continuance of high real rates in present circumstances appears to reflect, in part, uncertainties regarding the future course of macroeconomic policies in the major countries. This had produced uncertainty regarding exchange rate developments, and fear of significant capital losses on longer-term financial assets if inflation and interest rates were to move up again. More specifically, there is great concern regarding the effects of possibly large fiscal imbalances in some major industrial countries over the next few years.
In 1982, changes in macroeconomic conditions generally worked to reduce both the supply and demand for international loans, although these elements are not easily separated. The adjustment programs adopted by many developing countries led to a reduction in their current imbalances, and it is likely that the decline in world trade reduced the demand for trade financing. The latter coincided with lower levels of balance of payments financing. It appears that, for bank lending to certain country groups, supply factors were very important, if not dominant. The emergence of widespread debt servicing problems during 1982 significantly reduced the willingness of private financial institutions to engage in balance of payments financing for certain countries, if not generally.
Lending and Deposit Taking
International bank lending22 declined in 1982 for the first time since 1977, with the increase in foreign claims of banks in the BIS reporting area amounting to $95 billion, compared with $165 billion in 1981 and $160 billion in 1980 (Table 2). Not only did aggregate international bank lending decline sharply in 1982 but there were shifts in the composition of bank lending among the analytical country groupings. Lending to non-oil developing countries declined slightly relative to the total, and the share of bank lending to oil exporters increased. Lending to the industrial countries declined to $57 billion in 1982, compared with $99 billion in 1981. Relative to aggregate bank lending, however, the share of lending to these countries remained constant during the two years. The oil exporting countries were the only group for which the growth rate of bank claims increased in 1982 (Chart 3). At the same time, the absolute level of bank claims on centrally planned economies declined, following the debt servicing difficulties of various Eastern European countries, especially Poland. The combined current account deficit of the non-oil developing countries declined to $87 billion in 1982 (Table 8), compared with $108 billion in 1981, partly on account of adjustment to reduced capital inflows to these countries from both official and commercial sources. The sharp contraction in net bank lending to these countries meant that the relative share of the current account deficit of the non-oil developing countries financed by net bank lending also declined sharply in 1982 to 29 percent, compared with 47 percent in 1981 and a peak of 66 percent in 1979.
|All non-oil developing countries|
|Current account position||–11||–37||–46||–33||–29||–41||–61||–89||–108||–87|
|Borrowing through private markets||11||16||16||23||18||29||43||51||54||28|
|Medium-term credit commitments||5||9||9||13||13||27||43||33||45||37|
|Net oil exporters|
|Current account position||–3||–5||–10||–8||–6||–8||–9||–13||–24||–16|
|Borrowing through private markets||8||3||6||11||15||21||9|
|Medium-term credit commitments||…||2||3||3||4||9||12||9||14||11|
|Major exporters of manufactures|
|Current account position||–4||–19||–19||–12||–8||–10||–22||–33||–38||–34|
|Borrowing through private markets||…||…||…||12||7||15||20||24||25||18|
|Medium-term credit commitments||…||4||3||6||5||11||16||15||19||18|
|Current account position||–3||–7||–7||–6||–5||–8||–10||–12||–12||–12|
|Borrowing through private markets1||…||…||…||—||—||2||3||1||1||—|
|Medium-term credit commitments||…||—||—||—||—||—||4||1||2||1|
|Other net oil importers|
|Current account position||–1||–6||–10||–8||–12||–15||–19||–28||–33||–26|
|Borrowing through private markets1||…||…||…||2||4||9||9||9||7||1|
|Medium-term credit commitments||…||3||3||4||4||7||11||8||10||7|
|Accumulation of reserves||10||3||–2||13||13||17||13||5||2||–7|
With the exception of the centrally planned economies, the flow of deposit taking by banks from all country groups declined in 1982 (Table 1).23 The most notable shift involved the oil exporting countries, whose deposits with BIS reporting banks declined by $19 billion in 1982, compared with an increase of $5 billion in 1981. During 1979 and 1980, these countries’ deposits increased by about $40 billion each year. In 1982, new deposits of the industrial countries, even though reduced substantially from 1981, were greater than the total of international bank lending. The difference was more than accounted for by the withdrawal of bank deposits by oil exporters. The banks’ reliance on funding from the industrial countries increased sharply in 1981 and in 1982; as recently as 1980, the oil exporting developing countries were a major source of bank deposits.
The change in net bank claims (lending less depositing) in 1982 showed a significant net outflow of $45 billion from the industrial countries, and a $6 billion outflow from the centrally planned economies, with the other country groups being net recipient of funds. By this measure, the oil exporting developing countries were the largest net recipients of funds in 1982, whereas in 1979-81 they were the largest net suppliers of funds to the banks.
Medium-Term Credit Commitments
New publicized medium-term international credit commitments were $99 billion in 1982, compared with a total of $146 billion in 1981 (Table 4 and Chart 5). However, the 1981 figure includes an estimated $50 billion in extraordinary commitments to multinational corporations in connection with takeover bids, an important part of which was not and probably never will be drawn down. When the data are adjusted for this factor, it appears that total commitments were virtually unchanged from 1981 to 1982, despite the sharp decline in actual lending. Data on new publicized commitments during the first quarter of 1983 show a slight reduction to $19 billion, compared with $22 billion during the same period of 1982. However, nearly half of the commitments in the first quarter of 1983 were to Mexico ($5 billion) and Brazil ($4.4 billion), as part of debt restructuring arrangements with commercial banks in conjunction with Fund-supported programs. Aside from these commitments, there was a substantial decline in the pace of total new lending commitments, particularly to the rest of the group of non-oil developing countries.
Chart 5.International Bank Credit Commitments and International Bond Issues, 1973–81
1 Excludes multibillion dollar financing of U.S. corporations related to takeovers in 1981.
Developments regarding new medium-term commitments are consistent with the preference that has been expressed by many banks to substantially reduce their participation in medium-term syndicated sovereign lending operations in favor of trade-related and project-related finance and loans organized through private placements. However, as recent experience shows, movements in medium-term commitments have not proved to be a reliable indicator of actual bank lending, even after taking into account probable lags. The ratio of new commitments to net bank lending, which varied widely in recent years, increased sharply in 1981 and 1982 (Table 4). Unfortunately, the data available are not adequate to analyze this development, as the BIS data on international bank lending neither identifies specific types of bank claims (e.g., claims arising from syndicated loans) nor provides data on gross flows of disbursements from the repayments to banks.
As regards interest rates, the average six-month Eurodollar rate had by the end of 1982 declined to about 9.5 percent, and, for the 1982 average, was 13.5 percent, compared with 16.6 percent in 1981 and 14.0 percent in 1980. At the same time, the average spread on new publicized medium-term international bank credit commitments increased to 0.79 percent in 1982, compared with 0.70 percent in 1980 and 1981. Even so, average spreads remained well below the levels experienced during 1974-78 (Chart 4). Developments during 1982 were sharply differentiated by type of borrower, as the average spread on new commitments to borrowers from member countries of the Organization for Economic Cooperation and Development (OECD) increased by only 8 basis points, to 0.55 percent, while the average spread on commitments to developing country borrowers increased by 15 basis points, to 1.09 percent. The difference between the average spreads to these two groups of borrowers therefore increased to 54 basis points, which is the highest this difference has been since 1977. This difference in spreads also became more pronounced during 1982; it was only 29 basis points during the first quarter, but widened to 71 basis points by the fourth quarter. This undoubtedly reflected the market’s increased concern over the quality of developing country loans.
The pricing of portions of syndicated lending operations at a spread over the U.S. prime lending rate continued to be common. The spread over the U.S. prime rate tended to be lower by 12-25 basis points than for the portion of the loan priced at a spread over the London interbank offered rate (LIBOR). In the end, prime-based portions of syndicated credits were usually more expensive, as the U.S. prime rate averaged more than 130 basis points above LIBOR in 1982. The existence of such differential pricing of loans makes the analysis of data on spreads more difficult as far as the assessment of movements in spreads over time, inter-country comparison of spreads, and the correlation of spreads to loan maturities are concerned. Moreover, the aggregate data will tend to understate the effective underlying increase in spreads to the extent that they reflect a reduction in syndications for countries experiencing debt servicing problems. In addition, the data do not include fees and charges, as reliable and complete information on these are not available.
The average maturity of new medium-term credit commitments declined in 1982 to 7.5 years, compared with 7.8 years in 1981, continuing the trend since a peak was reached in 1979. Nonetheless, considering the perceptions of increased riskiness of international lending in 1982, especially to developing countries, it appears that banks have been more inclined to reduce their relative participation in syndicated lending than to alter sharply the terms under which this type of lending is offered.
Non-Oil Developing Countries
The current account deficit of the non-oil developing countries declined by $21 billion during 1982, to $87 billion (Table 8). At the same time, net bank financing flows to these countries declined by $26 billion, to $25 billion.24 Previously, both the current account deficit of these countries and bank lending to them had increased every year since 1977. The rate of growth in bank claims on non-oil developing countries, which had averaged 25 percent a year during 1979–81, declined to under 9 percent in 1982 (Chart 2).25 As a result, the relative share of bank lending in financing the current account deficit of the non-oil developing countries declined to 29 percent in 1982, compared with 47 percent in 1981. The relative importance of net bank lending in financing the current account deficit of these countries has declined every year since reaching a peak of 66 percent in 1979 (Chart 3).26 Even though the growth in bank claims on these countries declined to less than 10 percent in 1982, after having remained above 20 percent in each of the three preceding years, the current dollar value of exports, imports, and GDP of these countries all suffered absolute declines. As a result, the stock of outstanding bank claims (i.e., debt owed to banks) still increased in 1982 relative to these countries’ exports, imports, and GDP (Table 9).
|Growth rate in bank debt||…||26||25||21||9|
|Growth rate in exports||15||29||26||5||–4|
|Growth rate in imports||19||30||29||6||–10|
|Growth rate in GDP||16||22||19||4||–1|
When bank financing of the non-oil developing countries is categorized according to the analytical country subgroups of the 1983 World Economic Outlook, it can be seen that these countries have had differing relationships to international capital markets in recent years. The net oil exporters—a group dominated in a statistical sense by Mexico—have been the most reliant on bank lending to finance their current account deficits since 1979, while the low-income countries have made relatively little use of bank lending (Table 10). Bank lending declined relative to the current account deficit of every analytical subgroup of the non-oil developing countries in 1982. Bank lending as a percentage of the current account deficit ranged from a low of zero in the low-income countries, to a high to 50 percent in the major exporters of manufactures. The changes in bank claims on these subgroups ranged from a decline of nearly 3 percent for the low-income countries to an increase of nearly 13 percent for the countries classified as major exporters of manufactures. This latter group received more than 65 percent of new bank lending to non-oil developing countries in 1982, a sharp increase in relation to the previous year, while the portion obtained by the other net oil importers and by the net oil exporters declined significantly.
|Bank lending to non-oil developing countries||21||15||25||40||49||50||25|
|Net oil exporters2||6||2||5||10||14||19||7|
|Major exporters of manufactures3||11||6||13||18||24||24||17|
|Other net oil importers||2||4||9||9||9||7||1|
|Bank lending as percentage of aggregate current account deficit||64||52||61||66||55||46||29|
|Net oil exporters||75||33||56||111||108||79||44|
|Major exporters of manufactures||92||75||130||82||70||63||50|
|Other net oil importers||22||33||47||47||32||21||4|
|Share in bank lending to non-oil developing countries (in percent) of|
|Net oil exporters2||29.2||11.7||19.2||24.8||27.8||37.5||29.8|
|Major exporters of manufactures3||50.0||40.0||53.1||45.8||47.9||48.2||65.9|
|Other net oil importers||18.9||24.1||35.9||22.5||19.3||13.3||4.9|
|Percentage increase in bank claims on non-oil developing countries||28.7||14.9||19.3||26.6||26.2||22.2||8.8|
|Net oil exporters2||34.3||6.9||15.3||28.0||30.5||33.7||10.0|
|Major exporters of manufactures3||31.6||12.9||22.5||25.9||26.9||22.8||12.6|
|Other net oil importers||33.9||21.7||40.6||29.8||24.5||14.5||2.3|
|Increase in total net international claims of banks in the BIS reporting area (in percent)||26.9||20.2||20.0||23.4||24.1||21.4||10.1|
|Share of non-oil developing countries in total net bank lending (in percent)||30.0||21.3||27.7||32.0||30.6||30.3||26.3|
While bank lending to the non-oil developing countries fell significantly in 1982, new medium-term inter-national bank credit commitments declined much more moderately to $37 billion in 1982, compared with $45 billion in 1981 (Table 4). This decline in new commitments was spread across all the analytical subgroups of the non-oil developing countries. As mentioned earlier, new commitments of medium-term bank credits have not exhibited a stable relationship to net bank lending during recent years and are, therefore, difficult to interpret. The ratio of new commitments to net bank lending for all non-oil developing countries declined from nearly 110 percent during 1978-79, to only 67 percent in 1980. Such a decline would have been consistent with increased reliance by these countries on short-term financing. The ratio of new commitments to new lending increased sharply during the past two years and reached nearly 150 percent during 1982. As discussed previously, data adequate to analyze this development are not available, especially regarding actual disbursements of syndicated loans.
Data on the maturity distribution of bank lending indicate that, for the group of non-oil developing countries, there has been little change in the share of outstanding bank claims that are falling due within one year (Table 37). Nonetheless, there are significant differences among the major non-oil developing country borrowers regarding the maturity profile of their debt to banks.
Western Hemisphere Countries
The non-oil developing countries of the Western Hemisphere have been particularly important borrowers from international capital markets relative to other countries included in this analytical group of countries. When non-oil developing countries are ranked according to debt to banks, three of the top six borrowers are located in the Western Hemisphere and, as of the end of 1982, 56 percent of bank claims on non-oil developing countries were on those located in that region.27 The current account deficit of these countries grew both in nominal terms and relative to GDP for a number of years prior to 1982 (Table 11). At the same time, new net bank lending also increased, even though it declined relative to these countries’ expanding current account deficits.
|Billion U.S. dollars|
|Summary balance of payments|
|Net services and private transfers||–9.2||–12.1||–17.3||–24.5||–35.4||–40.3|
|Current account deficit||–8.5||–13.3||–21.4||–33.4||–45.4||–34.9|
|Use of reserves (–)||5.1||8.9||7.5||–0.6||2.0||–11.2|
|Bank claims outstanding1||66.4||80.8||103.9||131.5||161.6||172.8|
|New bank lending1||7.1||14.4||23.1||27.6||30.1||11.2|
|Current account deficit as percentage of GDP||2.3||3.5||4.6||5.8||7.5||6.2|
|New net bank lending as percentage of current account deficit||83.5||108.3||107.9||82.6||66.3||32.1|
|New net bank lending as percentage of current account deficit plus reserve accumulation||52.2||64.9||79.9||84.1||69.4||49.4|
|Ratio of bank claims outstanding to GDP||20.1||21.4||22.2||22.9||26.8||30.6|
|Ratio of bank claims outstanding to exports of goods and services||137.1||166.9||148.4||151.7||174.0||197.0|
In 1982, the current account deficit of the non-oil developing countries in the Western Hemisphere declined to $34.9 billion, or 6.2 percent of GDP, compared with a deficit of $45.4 billion, or 7.5 percent of GDP in 1981. Bank lending to these countries declined sharply to $11.2 billion in 1982,28 compared with $30.1 billion in 1981. As a result, bank lending was equivalent to 32 percent of the current account deficit in 1982, compared with over 66 percent in 1981. When reserve accumulation is taken into account, however, the picture is altered somewhat. The Western Hemisphere non-oil developing countries had been accumulating international reserves in 1977–79, but began to lose reserves at a moderate pace in 1980–81. The reserve loss increased substantially in 1982, totaling $11.2 billion, compared with a reserve loss of $2.0 billion in 1981. Therefore, when measured as a percentage of these countries’ current account deficits plus reserve accumulations (or in this case, less reserve losses), bank lending declined to 49 percent, compared with 69 percent in 1981 (Table 11).
Despite the sharp reduction in bank lending to these countries in 1982, bank claims outstanding on them were equivalent to nearly 31 percent of GDP in 1982, compared with about 27 percent in 1981. Outstanding claims grew to nearly 197 percent of exports of goods and services in 1982, from 174 percent in 1981 (Table 11). These results are explained in part by the nearly 7 percent decline in GDP measured in current U.S. dollars and the 6 percent decline in the dollar value of exports of goods and services experienced by these countries in 1982. While these countries had a combined surplus on trade account for the first time since 1977, their services and transfer account continued to deteriorate, owing in large part to high and increasing interest payments on their external debt.
The pattern of bank lending to non-oil developing countries in the Western Hemisphere was greatly influenced in 1982 by the events that led to the emergence of debt servicing problems during the second half of the year. The combination of weak demand for their exports and high real interest rates in capital market countries had dimmed the economic prospects for many non-oil developing countries; the need for external adjustment was recognized by all the major borrowing countries in the region. Growth in bank claims on the non-oil developing countries in the Western Hemisphere declined to 8 percent during the first half of 1982, compared with a growth rate of about 15 percent during the same period of 1981. The onset of external payments difficulties in two of the major borrowing countries in this group resulted in the generalization of debt servicing problems, as new bank lending to other non-oil developing countries in the region slowed markedly during the second half of 1982; bank claims on them increased by less than 1 percent in this period, compared with a growth of nearly 16 percent in the second half of 1981. Despite the current account adjustment already under way in these countries, the sharp decline in bank lending inevitably resulted in international reserve losses. Capital flight also contributed to such losses in a number of countries. Since the beginning of 1982, 12 of the 30 non-oil developing countries in the Western Hemisphere have either negotiated, or initiated negotiations, for a restructuring of their debt to banks.29
Centrally Planned Economies
Even though bank claims on the centrally planned economies30 represent less than 5 percent of total bank international claims, this group of countries was severely affected by the decline in international bank lending in 1982. Bank claims on the centrally planned economies declined by $3.5 billion in 1982, following in 1982. There have been no new publicized increases of $4.3 billion in 1981 and $5.5 billion in 1980 (Table 12). At the same time, the current account position of these countries moved into a surplus or $2 billion, following deficits of about $4 billion in both 1980 and 1981 (Table 25). It is likely that the sharp reversal in the current account position of these countries was due in large part to their inability to obtain new netbank financing; constraints on the availability of new finance from official sources also played a role.
|1976||1977||1978||1979||1980||1981||1982||stock end of 1982|
|German Democratic Republic||1.0||0.5||1.3||1.3||2.3||1.3||–1.0||8.5|
|Eastern Europe, excluding U.S.S.R.||3.8||2.7||5.3||5.1||4.3||0.8||–2.4||30.1|
Bank claims declined on every individual country in the group of centrally planned economies in 1982. Bank lending to the group has been concentrated in the U.S.S.R., Poland, and the German Democratic Republic. Following the 1979-80 round of oil price increases, bank lending to the smaller economies of the group had already become negative. The emergence of the severe debt servicing problems in Poland in 1981 heightened banks’ perceptions of regional risk, and banks generally have become unwilling to lend to these countries without explicit third-party guarantees.31 In addition, the difficulties encountered by banks in the debt rescheduling negotiations with Poland, and the prospective need for repeated rescheduling, have made banks very reluctant to increase their exposure to this group of countries. It is also likely that some of these countries, especially the U.S.S.R., reduced their demand for bank lending during the past year. As a result, bank claims on Poland, the German Democratic Republic, and the U.S.S.R. declined by 5, 10, and 7 percent, respectively, in 1982. There have been no new publicized mediumterm credit commitments to these countries since the first quarter of 1982 and it appears unlikely that syndicated lending to these countries would resume in the near future on a significant scale.
Despite the decline in bank claims on the centrally planned economies in 1982, bank deposits of these countries increased for the first time since 1979, reaching a total of $15.7 billion by the end of 1982 (Table 27). However, this increase was more than accounted for by the increase in the deposits of the U.S.S.R., as bank deposits of Poland increased only slightly and those of the German Democratic Republic declined. The decline in bank claims on centrally planned economies in 1982, together with the increase in their deposits, implies that the liquidity position of these countries has improved somewhat. The ratio of their bank deposits to bank debt increased to 35 percent in 1982, compared with 28 percent in 1981 and 29 percent in 1980. However, there is considerable variation in this ratio between countries, ranging from 70 percent in the U.S.S.R. to 7 percent in Poland.
Oil Exporting Developing Countries
The decline in the price and volume of petroleum exports in world markets in 1982 resulted in a dramatic shift in the current account position of the oil exporting countries, as well as in their position vis-a-vis the banks. As a group, these countries had a small current account deficit of $2 billion in 1982, following surpluses of $65 billion in 1981 and $114 billion in 1980 (Table 13). Reflecting this sharp deterioration in their current account position, the bank deposits of these countries declined by $19 billion in 1982, after increasing by $5 billion in 1981 and by an average of nearly $40 billion a year in both 1979 and 1980. At the same time, bank lending to these countries rose from $2 billion in 1981 to $8 billion in 1982 (Table 1). The oil exporting developing countries, therefore, evolved from being the major net supplier of funds to the banks in 1979-80 to being the major net user of funds from the banks in 1982. The increase in bank claims on the oil exporting developing countries in 1982 was distributed across most individual countries and country subgroups (Table 26), as was the decline in bank deposits (Table 27). However, the decline in deposits was concentrated in Venezuela, and the so-called high-absorbing Middle East countries (i.e., Bahrain, the Islamic Republic of Iran, Iraq, Libya, and Oman).
|Current account surplus||68||35||40||30||2||69||114||65||–2|
|Plus: Oil sector capital transactions1||–12||1||–6||–1||2||–9||–1||2||3|
|Equals: Cash surplus||—||—||—||—||—||—||—||—||—|
|available for disposition||58||39||42||39||20||70||121||72||10|
|Increase in deposits with banks in the BIS reporting area3||30||14||12||11||3||37||41||5||–19|
|Increase in bank deposits as percentage of current account surplus||44||40||30||36||150||54||36||8||…|
|Increase in bank deposits as percentage of cash surplus||52||36||29||28||15||53||34||7||…|
After the 1973 round of oil price increases, and again after the second round in 1979-80, both the size of the available cash surplus of these countries (i.e., the current account surplus plus net borrowing), and the proportion of this surplus placed with banks, first rose sharply and then fell (Table 13). However, the subsequent decline in these countries’ available cash surplus was much more abrupt during 1981-82 than after the 1973 round of oil price increases. This resulted in a more rapid decline in the relative importance of BIS reporting area banks in intermediating the financial surplus of this group of countries than after the first round of oil price increases. This was particularly notable during 1981, when the available surplus of the oil exporting developing countries amounted to $72 billion, but bank deposits of these countries increased by only $5 billion. The main reasons for this development was the increased role of official institutions (including the Fund) in recycling through direct borrowing from the major surplus countries in this group; an increasing intermediating role for banks headquartered in the oil exporting countries and that were, by virtue of this location, excluded from the BIS reporting system; and an increase in the speed with which surplus funds were channeled to direct long-term foreign investment.
An important influence on the share of available cash surplus intermediated by banks was also the distribution of the surplus between various countries within the group. The so-called low absorbers (i.e., Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates) have consistently had the largest share of the current account surplus of this group of countries and, at the same time, have tended to place a relatively low proportion of their surplus funds as bank deposits. In 1981 these low absorbers still experienced a relatively large current account surplus, while the remainder of the group was in deficit. This provides a further explanation why the share of the total current account surplus of the group deposited with banks shrank in 1981 to 8 percent from 36 percent in 1980. In 1982, the current account surplus of the low absorbers declined sharply, while the current account deficit of the other countries in the group continued to increase. Even though the total bank deposits of the oil exporters declined in 1982, the decline in deposits was smaller relative to the change in the current account position than in 1981. In part, this was because the change in the current account position of these countries in 1982 resulted more from a shift in the position of the low-absorbing countries (who were less likely to intermediate through the banks). In 1981, the reduction in the group’s current account surplus was due more to the changes experienced by high absorbers.
Analysis of the net flow of funds through banks between the industrial countries and the rest of the world is also based on the basic BIS data series on the external claims and liabilities of reporting area banks. To the extent that these banks’ foreign claims increase more than their foreign liabilities, the difference represents the amount of international lending funded by domestic bank deposits and other liabilities. A proportion of the banks’ foreign claims, however, are claims on nonbanks in other reporting area countries and, similarly, a portion of the banks’ foreign liabilities represent deposits by nonbanks in other reporting area countries. Such claims and liabilities are netted out of the domestic funding figure to determine the net flow of funds from banks in the reporting area to countries outside the reporting area. In 1982, the net outflow of funds from the BIS reporting area banks to the rest of the world, when calculated as described above, totaled $53 billion, compared with a net outflow of $42 billion in 1981 (Table 14).
|Transactions within BIS reporting area|
|Net domestic funding of international operations||–46||–1||28||49|
|Plus increase in foreign liabilities2 to other reporting countries||144||156||155||98|
|Minus increase in foreign claims2 on other reporting countries||–113||–136||–142||–94|
|Equals net financing of countries outside reporting area||——|
|Transactions with offshore centers||–10||6||–5||1|
|Increase in claims on offshore centers||32||33||50||32|
|Minus increase in liabilities to offshore centers||–42||–27||–55||–31|
|Transactions with other industrial countries||–2||6||5||7|
|Increase in claims on other industrial countries||5||8||9||8|
|Minus increase in liabilities to other industrial countries||–7||–2||– 4||–1|
|Transactions with nonindustrial countries3||–3||7||41||45|
|Increase in claims on nonindustrial countries||56||64||66||38|
|Minus increase in liabilities to nonindustrial countries||–59||–57||–25||7|
As most industrial countries are within the BIS reporting area, this $53 billion net outflow of funds recorded in 1982 was mainly to nonindustrial countries (Table 14). It derived primarily from the $49 billion in net domestic funding of reporting area banks. The balance of the outflow was funded from other countries within the reporting area. Three fourths of the $49 billion of net domestic funding of international operations of reporting banks was from banks in the United States (Table 15). This represented a continuation of developments evident during 1981, when $38 billion of the $41 billion net outflow of funds from reporting area banks were derived from net domestic funding of U.S. banks. Nonetheless, this represents a sharp shift from the situation that prevailed as recently as 1979, when banks in the BIS reporting area were net takers of funds from outside the reporting area in the amount of $15 billion (Table 14). The large shift in the net position of the reporting area banks between 1979 and 1982 was due largely to the shift in the position of U.S. banks. In 1979, U.S. banks had negative net domestic funding of $21 billion, meaning that their international liabilities had increased $21 billion more than their international assets. By 1980, however, these banks had positive net domestic funding of over $31 billion; a change of more than $52 billion in two years. In 1982, this net domestic funding was $38 billion.
|Exchange Rate Adjusted Changes|
|1979||1980||1981||1982||First quarter||Second quarter||Third quarter||Fourth quarter||Amounts Outstanding at End of 1982|
|Banks in the European reporting area||150.9||158.7||134.0||58.8||8.7||–4.3||36.8||17.6||1,023.6|
|Banks in Canada||3.1||10.1||2.7||0.9||1.4||0.9||–2.1||0.7||38.8|
|Banks in Japan||13.4||18.4||20.7||8.0||8.6||–8.3||10.5||–2.8||90.9|
|Banks in the United States||17.1||40.7||75.4||105.4||27.2||39.0||24.1||15.1||361.4|
|Of which: International Banking Facilities||—||—||63.4||80.3||28.4||26.3||15.3||10.3||143.6|
|Offshore branches of U.S. banks||21.0||13.7||31.9||0.6||–3.4||2.6||–1.6||3.0||172.0|
|Banks in the European reporting area||172.3||179.0||126.0||57.6||7.5||–3.3||36.0||17.4||1,039.1|
|Banks in Canada||7.7||11.0||18.0||–3.5||1.9||–1.0||–3.2||–1.2||58.7|
|Banks in Japan||12.6||28.9||21.8||0.8||9.9||–10.2||8.4||–7.3||100.0|
|Banks in the United States||38.0||9.4||37.7||67.1||26.1||28.2||7.4||5.4||244.5|
|Of which: International Banking Facilities||—||—||46.9||76.0||31.8||22.2||12.4||9.6||123.9|
|Offshore branches of U.S. banks||21.3||14.3||33.5||3.0||–1.2||0.9||—||3.3||178.2|
|Net domestic funding||–46.4||–1.0||27.7||48.7||–1.7||15.3||19.1||16.0||66.2|
|Banks in the European reporting area||–21.4||–20.3||8.0||1.2||1.2||–1.0||0.8||0.2||–15.5|
|Banks in Canada||–4.6||–0.9||–15.3||4.4||–0.5||1.9||1.1||1.9||–19.9|
|Banks in Japan||0.8||–10.5||–1.1||7.2||–1.3||1.9||2.1||4.5||–9.1|
|Banks in the United States||–20.9||31.3||37.7||38.3||1.1||10.8||16.7||9.7||116.9|
|Of which: International Banking Facilities||—||—||16.5||4.3||–3.4||4.1||2.9||0.7||19.7|
|Offshore branches of U.S. banks||–0.3||–0.6||–1.6||–2.4||–2.2||1.7||–1.6||–0.3||–6.2|
In 1979 the large net inflow of funds from outside the BIS reporting area through banks in the United States can be largely explained by reference to the monetary policy measures introduced in the United States late in 1979 that increased U.S. interest rates and encouraged U.S. residents to borrow abroad.32 The unwinding of these large inflows explains a portion of the net capital outflow through U.S. banks experienced in the subsequent year. However, the size and persistence of these net outflows since 1980 cannot be ascribed either to the reversal of the measures introduced late in 1979 or to current account developments in the United States. There was only a small current account surplus during 1980 and 1981, and an $8 billion current account deficit in 1982. It appears likely that the large capital outflows from U.S. banks during 1980-82 that were funded domestically are counterparts of capital inflows through nonbank channels.33 In general, due to the complexity and diversity of financial markets in industrial countries, the net international funding activity of banks in these countries is only loosely linked to the current account position of the individual countries.
The total net flow of funds from the United States to the international banking system totaled nearly $47 billion in 1982. This was close to 90 percent of the $53 billion of total net flow of funds from the reporting area to the rest of the world through banks in 1982. In 1982, U.S. residents placed about $8 billion on deposit in foreign banks, while reducing their borrowing from foreign banks by less than $1 billion (Table 16). As a result, the net foreign position of nonbank U.S. residents vis-àvis foreign banks showed an outflow of more than $8 billion in 1982, compared with a net outflow of nearly $26 billion in 1981.
|Transactions of Nonbank Residents with Foreign Banks|
|Change in Foreign Position of|
Banks Located in Reporting Country
|European reporting area||1.2||8.0||18.9||–10.9|
|Germany, Federal Republic of||0.3||–0.3||3.5||–3.8|
|Offshore branches of U.S. banks||–2.4||…||…||…|
Changes in U.S. banking legislation has permitted the operation since December 1981 of International Banking Facilities (IBFs). Although these agencies are located in the United States, they are allowed to conduct business with nonresidents, other IBFs, and the parent entity, largely as if the IBF was an offshore banking affiliate of the parent entity.34 The IBFs currently enjoy certain tax advantages that make them attractive relative to a true offshore branch for various banking activities. However, there are limitations on the permitted activities of IBFs that are more restrictive than for true offshore branches, although the two types of institutions are treated similarly with regard to reserve requirements and interest rate ceilings.
To date, about 400 IBFs have been established, in many cases, by U.S. agencies of foreign banks. The assets of IBFs grew rapidly in 1981, as assets were shifted to the IBFs from offshore branches and from parent entities. Asset growth in 1982 was moderate, and the majority of IBF activity was interbank. Data on the claims and liabilities of IBFs are separately identified in the BIS data. However, the shifting of assets from the foreign branches of U.S. banks would have the effect of inflating the growth of gross international claims and liabilities of U.S. banks. During the first month of the IBFs’ operation in December 1981, the net domestic funding of international lending operations by them reached nearly $15 billion. By the end of 1982, the net domestic funding of the IBFs declined to $4 billion, even as the growth of their international assets reached $80 billion (compared with $63 billion in 1981). This indicates that U.S. banks are no longer shifting assets to the IBFs directly from their own balance sheet, but rather that the IBFs are dealing mainly with foreign banks and nonbanks, as well as foreign branches of U.S. banks.
Increases in both foreign assets and liabilities of banks in the European reporting area slowed sharply during 1982 compared with 1981. Increases in foreign claims of European reporting area banks amounted to $59 billion in 1982, compared with a growth of $134 billion in 1981 (Table 15). The growth rate of foreign claims slowed to 6 percent in 1982 after a growth of 16 percent was recorded in 1981. Foreign liabilities grew by nearly $58 billion in 1982, or by 6 percent after increasing by $128 billion (13 percent) in 1981. It is likely that the slowdown in the growth of international liabilities of European banks is related to the decline in the foreign bank deposits of the oil exporting countries. When the transactions of European banks are viewed together with the transactions of residents with banks abroad, the European reporting area was a net borrower of about $10 billion in 1982 (Table 16). Among the countries in the European reporting area, only banks in Switzerland and Italy were net lenders during 1982, while the banks in the United Kingdom were the largest net borrowers. In 1981, the European reporting area was a net borrower of more than $9 billion.
Japan’s banking system was a net supplier of funds to the rest of the world of nearly $10 billion in 1982, after having been a small net supplier of funds in 1981. The net international outflow of funds from Japanese banks was more than $7 billion in 1982, while they had been small net borrowers in 1981 (Table 15). This occurred despite a slowdown in the growth of international assets of Japanese banks to $3 billion in 1982, compared with nearly $21 billion in 1981. However, there was very little increase in the international liabilities of Japanese banks in 1982, after these had grown by nearly $22 billion in 1981. Japanese nonbank residents also reduced their debt to foreign banks by more than $2 billion in 1982 (Table 16). Japanese residents hold limited deposits abroad.
When account is taken of both resident and nonresident banks, Canada was also a net international supplier of funds during 1982 of about $4 billion, after having been a net borrower to the extent of about $15 billion in 1981. This shift in the foreign position of Canadian banks was probably due to the weakening of domestic economic activity and a decline in takeover activity by large Canadian corporations, which together led to a weaking in loan demand.
A more extensive analysis and further background information can be found in International Monetary Fund, World Economic Outlook, Occasional Paper No. 21 (May 1983).
This reduction in global current account deficits may have been even larger in light of the sharp increase in 1982 in the so-called statistical asymmetry in the estimation of global current account balances.
Net of redepositing among banks in the BIS reporting area. For a discussion of alternative measures of international bank claims, including the International Financial Statistics series on foreign claims on deposit banks, see Appendix I, p. 59.
The reader is reminded that the bulk of bankers’ liabilities to the developing countries, including the major oil exporters, represent these countries’ holdings of foreign exchange reserves. There is a considerable distinction between changes in these deposits and changes in the deposits of private sector residents, which represent the bulk of banks’ liabilities to major industrial countries.
The BIS semiannual report suggests that the decline may have been less, perhaps by $13 billion, to $38 billion.
The semiannual data implies an increase of about 12 percent.
Banking flows to these countries might also be examined, taking into account reserve movements in addition to their current account deficits. The non-oil developing countries accumulated reserves in every year from 1976 to 1981 but their reserves declined in 1982. Chart 3 therefore also graphs the ratio of bank lending and bond issues to the non-oil developing countries to their current account deficits plus reserve accumulations (less reserve losses).
This discussion excludes Venezuela, which is classified as an oil exporting developing country, but includes Mexico, which is classified among the net oil exporter category of non-oil developing countries.
The BIS semiannual data put the figures at about $19 billion in 1982.
A more extensive coverage of these events and the progress made toward the resolution of the debt servicing difficulties of this group of countries will be given in a forthcoming Occasional Paper.
The centrally planned economies group is defined in the 1983 World Economic Outlook and excludes all Fund members.
Bank lending to Eastern European countries was extensively reviewed in the December 1982 issue of Finance and Development in an article by Richard C. Williams and Peter M. Keller, entitled “Eastern Europe and the International Banks.”
These developments are discussed at length in International Monetary Fund, International Capital Markets: Developments and prospect, 1982, Occasional Paper No. 14 (July 1982), pp. 36–40.
The United States had net capital inflows in 1981 and 1982 if errors and omissions and reserve movements are included.
For a detailed summary of developments regarding IBFs, see Board of Governors of Federal Reserve System, Federal Reserve Bulletin (October 1982), pp. 565–77.