Emerging Markets Bank Lending Conditions Survey 2014Q3

Transcription

1 Emerging Markets Bank Lending Conditions Survey 2014Q3 October 30, 2014 EM bank lending conditions tightened slightly in 2014Q3 after having improved in 2014Q2. The tightening was driven by a significant increase in nonperforming loans, notably in. Moreover, the marked improvement witnessed in loan demand, funding conditions and trade finance in 2014Q2 waned somewhat. In particular, loan demand slumped in. Credit standards continued to be tightened, but at a relatively slower pace, largely driven by. EM BANK LENDING CONDITIONS TIGHTEN AGAIN The composite index* for bank lending conditions dipped slightly below the threshold of to 49.6 in 2014Q3, implying a marginal tightening in EM bank lending conditions relative to 2014Q2 (Chart 1). This was driven by a slowdown in loan demand, reflecting the weak recovery in EMs (Chart 2). Nonperforming loans (NPLs) increased further, suggesting that past growth slowdown and financial market volatility are continuing to affect bank asset quality. While domestic funding conditions eased further, the improvement in international funding conditions witnessed in 2014Q2 subsided, possibly due to greater risk aversion towards EM assets during the quarter, a development also observed in our monthly Portfolio Tracker. The supply of trade finance also slowed even as the demand for trade finance continued to tick up. Meanwhile, the tightening in bank credit standards moderated. By region, bank lending conditions continued to tighten in and. The improvement in bank lending conditions in and waned somewhat. Charles Collyns MANAGING DIRECTOR AND CHIEF ECONOMIST ccollyns@iif.com Felix Huefner DEPUTY DIRECTOR Global Macroeconomic Analysis fhuefner@iif.com Arpitha Bykere SENIOR RESEARCH ASSISTANT Global Macroeconomic Analysis abykere@iif.com Litia Shaw SENIOR PROGRAM ASSISTANT Global Macroeconomic Analysis lshaw@iif.com Table of Contents Page Lending Conditions by Category 2-5 Lending Conditions by Region 6-8 EM vs. G3 Lending Conditions 9-10 Lending Conditions by Question General Notes 18 Diffusion Indices 19 For further details about the EM Lending Survey, please refer to the User Guide Chart 1 Chart 2 EM Bank Lending Conditions Index IIF EM Bank Lending Conditions by Category diffusion index (=neutral), average of answers to 14 questions diffusion index (=neutral) Credit Standards Nonperforming Loans Trade Finance Demand for Loans Funding Conditions *Values above indicate easing lending conditions relative to previous quarter, values below indicate tightening lending conditions. An NPL index below implies a rise in NPLs. The IIF s latest EM Bank Lending Conditions Survey covering 136 EM banks was conducted between Sep 8 and Oct 22, 2014.

2 page 2 Chart 3 Credit Standards diffusion index (=neutral) CREDIT STANDARDS The tightening in credit standards moderated across all loan categories in 2014Q3, with the index climbing 1.3pts to 47.7 (Chart 3). The slower tightening of credit standards was largely driven by, while the pace of tightening increased in (Charts 4-7). Chart 4 Chart 5 Credit Standards for Corporate Loans Credit Standards for Commercial Real Estate Loans diffusion index (=neutral) diffusion index (=neutral) 30 Chart 6 Chart 7 Credit Standards for Residential Real Estate Loans Credit Standards for Consumer Loans diffusion index (=neutral) diffusion index (=neutral)

3 page 3 Chart 8 Demand for Loans diffusion index (=breakeven) DEMAND FOR LOANS Loan demand weakened across all loan categories in 2014Q3, with the index declining 1.9 pts to 51.1 (Chart 8). The demand for corporate loans tumbled, led by a sharp dip in and a weaker trend in other regions (Chart 9). also drove the stagnation in commercial real estate loan demand, offsetting the improvement witnessed in other regions, notably in (Chart 10). Meanwhile, consumer loan demand eased marginally as loan demand contracted in and decelerated in and, offsetting the notable increases witnessed in and Sub- Saharan Africa (Chart 12). Chart 9 Chart 10 Demand for Corporate Loans Demand for Commercial Real Estate Loans diffusion index (=neutral) diffusion index (=neutral) 70 Chart 11 Demand for Residential Real Estate Loans diffusion index (=neutral) Chart 12 Demand for Consumer Loans diffusion index (=neutral) 75 70

4 page 4 Chart 13 Chart 14 Domestic Funding Conditions International Funding Conditions diffusion index (=neutral) diffusion index (=neutral) 30 Domestic funding conditions eased further in 2014Q3, with the index edging up 1.3pts to 52.1 (Chart 13). This was largely driven by, where funding conditions eased for the first time since 2013Q2. Funding conditions eased at a slower pace in after showing a significant improvement in the previous quarter. Meanwhile, funding conditions continued to tighten in. The improvement in international funding conditions subsided in 2014Q3, with the associated index decreasing 2.0pts to 51.2 (Chart 14). This was driven by a substantial tightening in funding conditions in Sub- Saharan Africa and. Funding conditions in and eased at a slower pace, but EM Asia witnessed a marked easing in funding conditions. Chart 15 Chart 16 Supply of Trade Finance Demand for Trade Finance diffusion index (=neutral) diffusion index (=neutral) The index measuring the supply of trade finance fell 2.2pts to 53.2 in 2014Q3 (Chart 15) as supply slowed in all regions, particularly. The demand for trade finance continued to rise modestly, with the index reaching.8 in 2014Q3 (Chart 16). Demand stopping falling in and continued to trend higher in and. In contrast, demand weakened in and declined sharply in.

5 page 5 Chart 17 Chart 18 Evolution of NPLs in Past Three Months* Expected Evolution of NPLs in Next Three Months* diffusion index (=neutral) diffusion index (=neutral) Forecast 12Q4 13Q2 13Q4 14Q2 14Q4f *A reading of the NPL index below implies a rise in NPLs *A reading of the NPL index below implies a rise in NPLs Banks in and expect NPLs to moderate in 2014Q4 but those in expect NPLs to trend further up (Chart 18). Meanwhile, banks in and expect NPLs to continue to decline, though at a slower pace in the former. LENDING CONDITIONS BY REGION In the 20th IIF EM Bank Lending Conditions survey for 2014Q3, 136 banks from emerging economies participated: 32 from, 28 from, 19 from, 34 from and 23 from (Chart 19 and 20). Overall bank lending conditions continued to tighten in and while those in and in continued to ease, though at a slower pace (Chart 21, next page). Chart 19 Chart 20 Sample Size of Banks Surveyed Over Time Regional Distribution of Banks Surveyed number of banks number of banks NPLs increased significantly in 2014Q3 relative to 2014Q2, with the index falling 1.5pts to 46.2 (Chart 17). This was led by a substantial rise in NPLs in followed by. Meanwhile, NPLs continued to moderate in and declined markedly in Sub- Saharan Africa. Sub- Saharan Africa Q2 12Q4 13Q2 13Q4 14Q2 32

6 page 6 EMERGING EUROPE The improvement in bank lending conditions in lost steam in 2014Q3 with the overall index falling 2.2pts to.5 (Chart 22). This was driven by a sharp increase in NPLs and weakness in funding conditions and trade finance. NPLs rose substantially in 2014Q3 with the associated index plunging 8.2pts to.2, the lowest since 2012Q4. Banks expect NPLs to moderate somewhat in 2014Q4. The index for funding conditions dipped 2.5pts to.8 as both domestic and international funding conditions improved at a slower pace compared to the previous quarter. The supply of trade finance slowed markedly, with the index dropping 4.2pts to The demand for trade finance also decelerated with the index falling 3.3pts to Meanwhile, banks continued to tighten credit standards across all loan categories, keeping the index broadly unchanged from the previous quarter at By loan category, credit standards for housing loans were tightened sharply while those for consumer loans were tightened at a more moderate pace. On the positive side, loan demand continued to expand, though was a tad softer compared to 2014Q2 as the index inched down 0.5pts to The demand for commercial and residential real estate loans accelerated further. However, the demand for corporate loans and in particular consumer loans slowed from the previous quarter. Chart 21 Chart 22 EM Bank Lending Condition Indices by Region diffusion index (=neutral) diffusion index (=neutral) EM EUROPE Credit Standards Demand for Loans Funding Conditions Nonperforming Loans Trade Finance

7 page 7 LATIN AMERICA Bank lending conditions in continued to tighten in 2014Q3, though at a marginally slower pace, with the overall index inching up 0.4pts to 47.4 (Chart 23). The tightening in credit standards moderated across all loan categories, with the headline index edging up 1.2pts to Moreover, the contraction in loan demand continued to ease with the overall index ticking up 1.3pts to reach While corporate loan demand declined further, residential real estate loan demand increased for the first time in a year and consumer loan demand continued to expand. The demand for trade finance began to increase after two quarters with the index jumping 5pts to.0 even as the supply of trade finance slowed somewhat. Meanwhile, funding conditions continued to deteriorate with both the domestic and international funding conditions indices declining 1.4pts and 3.2pts to reach 46.1 and 46.0 respectively. Banks also witnessed an acceleration in NPLs during the quarter with the index falling 1.2pts to EMERGING ASIA The tightening of bank lending conditions in continued to moderate, with the index ticking up 0.6pts to 47.4 in 2014Q3 (Chart 24). This was driven by a marked easing in funding conditions, with the index jumping 6.9pts to Domestic funding conditions eased for the first time since 2013Q1 as the index surged 9.6pts to reach International funding conditions continued to ease with the index climbing 4.1pts to Additionally, credit standards were tightened at a significantly slower pace, particularly for residential real estate loans, helping the overall index rise 5.9pts to 47.5, the highest level since 2010Q4. Credit standards for consumer loans were eased for the first time since 2011Q3 as the index soared 10pts to.0. NPLs continued to moderate with the index rising 2.3pts to 46.1, though banks expect NPLs to accelerate in 2014Q4. On the other hand, the index for loan demand dipped 7.4pts to 43.8, with corporate and commercial real estate loan demand in particular witnessing a sharp deterioration. The demand for trade finance declined further with the index declining 2.8pts to 44.7 even as the supply of trade finance continued to rise. Chart 23 Chart 24 LATIN AMERICA diffusion index (=neutral) Credit Standards diffusion index (=neutral) Demand for Loans Funding Conditions Nonperforming Loans Trade Finance EM ASIA Credit Standards Demand for Loans Funding Conditions Nonperforming Loans Trade Finance

8 page 8 MIDDLE EAST & NORTH AFRICA () Bank lending conditions in the region continued to ease in 2014Q3 but at a much slower pace compared to the previous quarter as the overall index dipped 1.2pts to 53.9 (Chart 25). The improvement in domestic and in particular, international funding conditions slowed, with associated indices falling 0.8pts and 3.7pts to.3 and 53.1 respectively. Moreover, the index for loan demand edged down 1.4pts to 57.1 as demand for all but commercial real estate loans decelerated. Credit standards for commercial real estate loans continued to be tightened and those for other loan categories were eased at a slower rate. While the demand for trade finance rose further, the supply of trade finance weakened markedly with the index falling 2.8pts to The pace of decline in NPLs also moderated and banks expect the trend to continue in 2014Q4. SUB-SAHARAN AFRICA Bank lending conditions in continued to ease in 2014Q3 with the overall index staying little changed from the previous quarter at 52.1 (Chart 26). NPLs declined further in 2014Q3 as the index jumped 5pts to 56.5 and banks expect the trend to continue in 2014Q4. While the supply of trade finance softened, the demand for trade finance continued to expand with the index climbing 4pts to The index for loan demand was broadly unchanged from 2014Q2 at 59.2 as a deceleration in corporate loan demand offset the acceleration in other loan categories. While domestic funding conditions continued to ease with the index staying unchanged at.0, international funding conditions tightened as the associated index plunged 7.6pts to Meanwhile, banks continued to tighten credit standards across all loan categories. Chart 25 Chart 26 diffusion index (=neutral) diffusion index (=neutral) Credit Standards Demand for Loans Nonperforming Loans Funding Conditions Trade Finance SUB-SAHARAN AFRICA Credit Standards Demand for Loans Funding Conditions Nonperforming Loans Trade Finance

9 page 9 COMPARISON WITH G3 BANK LENDING CONDITIONS: SUPPLY Chart 27 Chart 28 Credit Standards for Corporate Loans IIF EM Credit Standards for Commercial Real Estate Loans = breakeven Fed = breakeven ECB BoJ* IIF EM Fed 11Q3 12Q1 *Large firms 11Q3 12Q1 Chart 29 Chart 30 Credit Standards for Residential Real Estate Loans Credit Standards for Consumer Loans = breakeven = breakeven IIF EM Fed** ECB IIF EM Fed ECB BoJ*** 11Q3 12Q1 12Q3 13Q1 13Q3 14Q2 14Q3 **Prime mortgages 11Q3 12Q1 ***Households Note: G3 surveys used - Fed Senior Loan Officer Opinion Survey on Bank Lending Practices (14Q2); ECB Bank Lending Survey (14Q3); BoJ Senior Loan Officer Opinion Survey on Bank Lending Practices at Large Japanese Banks (14Q3).

10 page 10 COMPARISON WITH G3 BANK LENDING CONDITIONS: DEMAND Chart 31 Chart 32 Demand for Corporate Loans IIF EM Demand for Commercial Real Estate Loans = breakeven Fed = breakeven ECB BoJ* IIF EM Fed BoJ** 11Q3 12Q1 *Large firms 11Q3 12Q1 **Large firms Chart 33 Chart 34 Demand for Residential Real Estate Loans IIF EM Demand for Consumer Loans = breakeven Fed*** = breakeven 70 ECB BoJ IIF EM ECB Fed BoJ 30 11Q3 12Q1 ***Prime mortgages 11Q3 12Q1 Note: G3 surveys used - Fed Senior Loan Officer Opinion Survey on Bank Lending Practices (14Q2); ECB Bank Lending Survey (14Q3); BoJ Senior Loan Officer Opinion Survey on Bank Lending Practices at Large Japanese Banks (14Q3).

11 page 11 RESULTS: CREDIT STANDARDS 1. Over the past three months, how have your bank s credit standards as applied to loans to commercial and industrial enterprises changed? Chart Chart 36 Answers: 136 diffusion index (=neutral) % % % 1.5% 12.5% 81.6% 4.4% 0. AFME LATAM EUROPE ASIA 2. Over the past three months, how have your bank s credit standards as applied to loans for commercial real estate changed? Chart 37 Chart 38 Answers: 128 diffusion index (=neutral) % 7 % % % 2.3% 14.1% 4.7% 0. AFME LATAM EUROPE ASIA

12 page 12 RESULTS: CREDIT STANDARDS (CONTINUED) 3. Over the past three months, how have your bank s credit standards as applied to loans for residential real estate changed? Chart 39 Chart Answers: 125 diffusion index (=neutral) 8 7 % 74.4% % % 1.6% 13.6% 10.4% 0. AFME LATAM EUROPE ASIA 4. Over the past three months, how have your bank s credit standards as applied to other consumer lending (excluding residential mortgages) changed? Chart 41 Chart 42 Answers: 125 diffusion index (=neutral) % % % % 1.6% % 0. AFME LATAM EUROPE ASIA

13 page 13 RESULTS: DEMAND FOR LOANS 5. Over the past three months, how has the demand for loans from your bank s commercial and industrial clients changed? Chart 43 Chart 44 Answers: 1 diffusion index (=neutral) % % % % 25.2% 2.2% 1.5% AFME LATAM EUROPE ASIA 6. Over the past three months, how has the demand for loans from your bank s commercial real estate clients changed? Chart Chart 46 Answers:126 diffusion index (=neutral) % 54.8% % % 24.6% 3.2% 15.9% 1.6% AFME LATAM EUROPE ASIA

14 page 14 RESULTS: DEMAND FOR LOANS (CONTINUED) 7. Over the past three months, how has the demand for loans from your bank s residential real estate clients changed? Chart 47 Chart 48 Answers: 123 diffusion index (=neutral) %.3% % % 27.6% 2.4% % AFME LATAM EUROPE ASIA 8. Over the past three months, how has the demand for consumer loans (other than residential mortgages) changed? Chart 49 Chart Answers: 126 diffusion index (=neutral) % 49.2% % % 31.7% 0.8% 13.5% 4.8% AFME LATAM EUROPE ASIA

15 page 15 RESULTS: FUNDING CONDITIONS 9. Over the past three months, how have local funding conditions changed? Chart 51 Chart 52 Answers: 1 diffusion index (=neutral) % 57.8% % % % 0.7% 3. AFME LATAM EUROPE ASIA 10. Over the past three months, how have funding conditions in international markets changed? Chart 53 Chart 54 Answers: 133 diffusion index (=neutral) % % % % 2.3% 9.8% % AFME LATAM EUROPE ASIA

16 page 16 RESULTS: INTERNATIONAL TRADE FINANCE 11. Over the past three months, how has your willingness to supply international trade finance changed? Chart Chart 56 Answers:132 diffusion index (=neutral) % % % % % 19.7% 0. AFME LATAM EUROPE ASIA 12. Over the past three months, how has the demand for international trade finance from your clients changed? Chart 57 Chart 58 Answers:133 diffusion index (=neutral) % % % % 0.8% % 0.8% AFME LATAM EUROPE ASIA

17 page 17 RESULTS: NONPERFORMING LOANS 13. Over the past three months, how have nonperforming loans evolved in your bank lending portfolio? Chart 59 Chart Answers: 1 diffusion index (=neutral) % 59.3% % % Fallen 0.7% Risen 23.7% Risen 16.3% Fallen 0. Fallen Risen AFME LATAM EUROPE ASIA 14. Over the next three months, how do you expect nonperforming loans to evolve in your bank lending portfolio? Chart 61 Chart 62 Answers:1 diffusion index (=neutral) 59.3% % Fall % % 23.7% 14.8% Rise 0.7% Rise Rise Remain Fall 1.5% Fall AFME LATAM EUROPE ASIA

18 page 18 GENERAL NOTES The is addressed to Senior Loan Officers, Chief Credit Officers, Credit Risk Officers or other senior officers in equivalent positions from banks based in emerging economies. The 14 questions in the survey address five topics: 1) Credit standards for business, consumer and real estate loans; 2) Demand for business, consumer and real estate loans; 3) Domestic and international funding conditions; 4) Demand and supply conditions for trade finance; and 5) The evolution of nonperforming loans. The questions relate to the changes that occurred during the specified quarter unless otherwise stated. Regional indices for each question are calculated using the diffusion index methodology*. Regional indices for each of the five categories are simple averages of indices for specific questions under each category: Credit standards: questions 1-4; demand for loans: questions 5-8; funding conditions: questions 9-10; trade finance: questions 11-12; and nonperforming loans: questions The global indices for each category are then calculated as a non-weighted average of these regional indices (,, and Africa & Middle East) by category. Finally, the overall regional index is an average of the indices for the 14 questions. The overall global index is then calculated as an average of these regional indices. The detailed results are presented in the table on page 19. The survey results are compared with the G3 lending surveys on pages The survey questions and the results expressed as a net percentage of total answers and as a regional diffusion index are provided on pages The number of answers received for each question is also indicated since not all banks could answer all the questions in the survey due to their specialization. For further details on constructing and interpreting the diffusion indices, please see the User Guide. *The diffusion index is designed to capture the distribution of answers to each question in one number. To calculate the indices, each type of answer is assigned a value: 0 if conditions have tightened/demand has decreased considerably; 25 if conditions have tightened/demand has decreased somewhat; if conditions/demand remained unchanged; 75 if conditions have eased/demand has increased somewhat; and 100 if conditions have eased/demand has increased considerably. The average (mean) of the answers is then calculated using these values, and this percent is the diffusion index number. A diffusion index reading of should be interpreted as a neutral reading to the question; a value above (the maximum is 100) reflects strength; a value less than (the minimum is 0) reflects weakness.

19 page 19 DIFFUSION INDICES* Questions Global Africa and Middle East Middle East & North Africa** Sub-Saharan Africa** Latin America Credit Standards Commercial & Industrial Enterprises Commercial Real Estate Residential Real Estate Other Consumer Lending Demand for Loans Commercial and Industrial Clients Commercial Real Estate Clients Residential Real Estate Clients Demand for Consumer Loans Funding Conditions Domestic Funding Conditions Funding Conditions in International Markets Trade Finance Supply of International Trade Finance Demand for International Trade Finance NPLs Evolution in Past 3 Months Expected Evolution in Next 3 Months Total *The underlying time series data can be downloaded at Please note that the data is only for the exclusive use of IIF members, who can use the data for their research and publications by quoting the data source as IIF. Please contact us if you are not an IIF member and would like to access the data. For details about the calculation and interpretation of the above diffusion indices, please refer to the User Guide **Sub-Indices for Africa and Middle East For questions about the lending survey, please contact Arpitha Bykere at: abykere@iif.com or For questions about participating in the lending survey or the survey questionnaire, please contact Litia Shaw at: lshaw@iif.com or