The Strategist

IIF: Borrowing in emerging markets has become difficult

08/27/2018 - 15:30

Lending conditions in the developing countries markets have deteriorated in April-June this year after three quarters of a gradual easing, according to the data of the Washington Institute of International Finance (IIF, Institute of International Finance). via flickr via flickr
The aggregate credit availability index, calculated by the institute and based on results of bank surveys, fell to 48.7 points (down 1.7 points less than in the first quarter, 50 is equivalent to no change). The more strict conditions were mainly observed in the developing countries of Latin America and Europe. The trend will continue in the third quarter, the the institute’s respondents expect. "Potential shocks include growth rates of central banks of developed countries, trade disagreements that have already led to the weakening of the Chinese yuan, and the crisis in Argentina and Turkey. All these events have a negative impact on other emerging markets," - the IIF indicates. Banks in almost in all regions have become more sensitive to external political risks.

The subindex of credit standards (assesses the quality of borrowers) also continued to fall and amounted to 46.5 points (minus 2.4 points, the biggest decline since 2015, mainly due to business loans). The conditions for attracting domestic financing to banks also deteriorated markedly (minus 4.6 points, the greatest decline occurred in Latin America), but could improve in June-September to 46.7 points, the survey results. Borrowing abroad was slightly simplified (plus 0.1 points, in the first quarter there was a decline). At the same time, the demand for loans increased by 0.1 points, to 52 points (including plus 8 points in Asia). Demand for corporate loans increased by 1.5 points after a decline of 4.1 points in January- March, but the subindex may worsen already in the third quarter, the IIF expects. Finally, the subindex of the availability of trade finance (assessing willingness of banks to provide trade loans) decreased by 3.7 points to 50.9 points, while the subindex of bad debts fell to 50 points (the reduction in the indicator indicates growth of such debts for the third consecutive quarter). In July-September, the situation may become significantly worse in the developing countries of Europe and Latin America, it follows from the survey.