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IIF Emerging Markets’ Bank Lending Conditions Survey shows stable conditions in 2012Q3
Funding Strains eased, Non-Performing Loans rose. New Regulatory Requirements led to tighter Credit Standards
Tokyo, Japan, October 13, 2012 — The Institute of International Finance today published its latest issue of the quarterly Emerging Markets’ Bank Lending Conditions Survey (EMLC), which finds that the tighter funding conditions that were seen in Emerging Markets since early 2011 have “moderated significantly over the last few months” and have “eased for the first time since 2010Q4.”
Commenting on the report, Mr. Philip Suttle, Deputy Managing Director and Chief Economist of the IIF, said: “The survey shows that Emerging Markets, and the banks domiciled in them, are playing a vital role in ensuring that the global economy as a whole remains in positive growth territory.” The survey for the EMLC was conducted between September 10 and October 4, 2012, and is based on responses from 132 banks domiciled in all Emerging Market regions.
Funding conditions have noticeably improved in Emerging Europe in Q3, suggesting that the announcement of the ECB’s Outright Monetary Transactions program has already helped facilitate some banks’ access to international sources of funding. The global composite index of the EMLC improved, to 49.9 in 2012Q3, its highest in five quarters, showing that overall bank lending conditions in Emerging Markets were broadly stable in 2012Q3.
Tighter credit standards were most pronounced in Emerging Asia, which is negative overall for the region’s economy, but is likely to reflect a more prudent stance by banks, and also the fact that authorities have been guarding against too rapid a transition towards easier credit standards. Emerging Europe also saw a more cautious stance towards credit standards, in line with a moderation in growth expectations for the region.
Mr. Emre Tiftik, of the IIF’s economics staff, said: “Counter-balancing the brighter tone of the overall survey results is the fact that Non-Performing Loans (NPLs) have seen a sharp increase, and this remains a concern across all regions.” The rise in NPLs reflects the deterioration in bank asset quality, amid subdued economic activity during Q3. The rise in NPLs was most acute in Emerging Europe. Banks domiciled in emerging countries are still expecting a significant rise in NPLs going forward, partly reflecting weak growth prospects for 2012Q4.
Emerging Market banks in the survey also reported that one impact of new regulatory requirements has been the lifting of their capital ratios in the past 12 months; 31% of banks additionally said that they plan to raise their capital ratios over the next 12 months. Overall, banks reported that credit standards for loans to SMEs and large enterprises tightened markedly over the past 12 months, as a result of new regulations affecting their business. This tightening was particularly acute in Emerging Asia, where 50% of regional banks reported that they had tightened credit standards for loans to large enterprises, and 38% for SMEs.