Demand for bank loans mounts in emerging world, survey says

By added on 05/05/2011

Banks in emerging markets report strong and growing demand for loans from consumers and businesses, a sharp contrast with weaker demand in developed countries, a first-of-its-kind survey found, The Wall Street Journal reports.

The report offered another reminder that many emerging-market economies are booming while the US, Europe and Japan recover only languidly from a severe recession.

The survey of senior lending officers in 45 emerging-market banks also found that Asian banks, particularly in China, tightened lending standards over the year's first quarter, especially for real-estate loans, under pressure from governments worried about potential property bubbles.

The new survey, similar to those conducted by central banks in the US, Europe and Japan, was done by the Institute of International Finance, a global association of big banks. IIF, which began experimenting with its emerging-market survey at the end of 2009, will release results quarterly starting Wednesday.

"The most eye-catching aspect of our new survey—especially when comparing it to those conducted by central banks in the major developed economies—is the strength in loan demand in emerging economies," said Philip Suttle, the institute's chief economist.

"There is evidence that emerging-market banks are doing the right thing—which is being cautious," he added. "But it's hard to deal with the persistent strength in demand."

Although the US, Europe and other developed economies still account for the bulk of bank lending, emerging markets' share is growing rapidly as their economies zoom. In several, including China and Brazil, authorities are trying to cool a lending boom to avoid

The International Monetary Fund predicts that advanced economies will grow an inflation-adjusted 2.2 per cent this year while emerging and developing economies will grow 6.4 per cent.More than 60 per cent of emerging-market banks responding to the IIF's first-quarter survey said loan demand was increasing across the board, including 88 per cent of Asian banks and 71 per cent of banks in Latin America. Demand for consumer loans was particularly strong, especially in Brazil.

An index of demand for emerging-market consumer loans—in which readings above 50 signify expansion of loan demand and below 50 contraction—stood at 64.1 in the emerging markets of Asia, Europe, Africa, the Middle East and Latin America. In contrast, similar indexes in the US stood at 50.1, in Europe at 49.8 and in Japan at 48.5, according to the most recent surveys by central banks.

The various surveys find increasing corporate demand for loans across the board, though the trend is stronger in emerging markets. For instance, 56 per cent of emerging-market banks say demand for corporate loans has risen in the past quarter versus 35 per cent in the Fed survey of the US and 28 per cent in the latest European Central Bank survey. In emerging markets, business borrowing is more often done through banks than in the US, where big companies have an easier time raising money in bond markets

Gauging the willingness of banks to lend, the IIF survey found a divergence. Banks in emerging Asia generally are raising the bar on new loans to businesses and consumers while banks in Eastern Europe, Latin America and the Middle East generally are lowering them.

Overall, about 25 per cent of emerging-market banks eased corporate lending standards further in the past quarter while 16 per cent tightened them; the rest left them unchanged. In comparison, a Fed survey released this week found that no bank in the US reported tightening corporate lending standards further in the past quarter while 16 per cent said they had eased them. The latest ECB survey found more banks in Europe have tightened standards for business loans than eased.

The IIF said emerging-market banks in most places are tightening lending standards for commercial real-estate loans in the face of rising demand for such loans. The exception is Eastern Europe, a reflection of that region's improving economies, particularly in places spared the worst of the global financial crisis. Banks in the US generally have stopped raising the bar on lending for commercial real estate, but fewer than 10 per cent eased them in the first quarter, the Fed said earlier this week. But 40 per cent of banks in the US noted an uptick in demand for such loans.

For residential mortgages, the IIF survey found banks in Asia generally tightening standards while banks in other emerging markets are easing them. In the US, the new Fed survey found little change in standards for standard residential mortgages, though about 10 per cent of banks, on net, tightened standards on nontraditional mortgages.

The IIF enlarged its survey in the first quarter, making historical comparisons difficult. In early surveys, 21 banks participated. In the new one, 45 did, including 18 from the Middle East and Africa, seven from Latin America and 10 from Asia. Among 16 banks who responded both in the last quarter of 2010 and the first quarter of 2011, demand for loans grew in the first quarter but at a slower pace than late last year. Credit standards eased but less than in the previous quarter. The institute didn't release the identities of the banks surveyed.

In IIF reports, emerging Europe includes Bulgaria, the Czech Republic, Hungary, Poland, Romania, Russia , Turkey and Ukraine. Emerging Asia includes China, India, Indonesia, Malaysia, Philippines, South Korea and Thailand. Latin American markets include Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru and Venezuela. And Africa/Middle East includes the United Arab Emirates, Egypt, Lebanon, Morocco, Nigeria, Saudi Arabia and South Africa.