Emerging-Market Loan View Perks Up – WSJ

Written by Patrick Fisher January 31, 2013 0 comment


Lending conditions are improving in emerging markets for the first time in almost two years, providing a potential boost to economies weighed down by troubles in the euro zone and the U.S.

A survey to be released Wednesday by the Institute of International Finance, a global association of major banks, found that lending conditions in emerging economies perked up in recent months for the first time since the second quarter of 2011. Trade finance also is improving, a hopeful sign for the trade-dependent developing countries hit hard by the euro zone’s recession and financial turmoil.

The results should support expectations for stronger growth in emerging markets this year despite the continued euro-zone recession and slow growth in the U.S. due to tax increases and spending cuts.

“We’re getting a steady, gradual improvement,” said Philip Suttle, the IIF’s chief economist. “It’s another sign of global healing.”

The survey, which drew responses from executives at 141 emerging-market banks between mid-December and mid-January, assesses how financial institutions view their lending environments. It is modeled on surveys by central banks in the U.S., Europe and Japan to evaluate lending conditions in those economies.

The world’s major central banks can take much of the credit for the latest improvement after their moves in the second half of last year to douse financial fires, lower interest rates and push investors toward riskier assets.

Loose monetary policy in advanced economies eased international funding conditions for banks, while low interest rates from emerging-market central banks improved domestic funding conditionssubstantially, the report said. Banks in emerging Europe and Latin America benefited most from the easier access to cheaper funds, the survey found.

Escalation of the euro zone’s financial troubles in 2011 led banks in the currency union to rein in lending on the Continent and around the world. That helped push global trade growth down substantially last year. But efforts by European policy makers to prop up the banking sector appear to be reversing that damage now. The IIF’s survey found conditions for trade finance strengthening in recent months.

“It’s a good indicator for world trade after a very bad year,” Mr. Suttle said. “This would add to the factors for being a bit more optimistic about the emerging world in 2014.”

Despite the improvement in overall lending conditions, the latest findings showed trouble spots around the world. Loan demand continued to weaken in emerging markets, mainly due to lower demand for commercial real-estate loans.

Bad loans increased in most major regions. Nonperforming loans are expected to increase further this year in emerging Europe, Latin America and emerging Asia.

Credit standards continued to tighten as well, particularly in Asia, as banks in China and other faster-growing economies maintain caution after sharp increases in property prices and trouble around the world.

“It’s what you do when you’ve got reasonably strong growth around you, but you’re aware that the world is a risky place,” Mr. Suttle said. “This is the point in the Asian business cycle when you start making poor lending decisions if you’re not careful.”

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