Global credit growth to pick up in developed world; slowing in EMS
Monday, 7 October 2013 00:00
Fitch Ratings says in its latest Macro-Prudential Risk Monitor that global real lending growth should pick up to 4% this year, after having slowed to 2.5% in 2012, as credit contraction in the developed world and emerging Europe ends while EM growth continues, albeit slowing. This would take lending growth back to 2011’s 4% level, but still down from the recent peak of 5.5% in 2010.
On the basis of recent and prospective credit growth, macro-prudential risk indicators (MPI) would continue to trend lower.
A meagre 1% real credit growth in the developed world is forecast this year. Real credit growth in the developed world was a negative 1% in 2012, the second successive year of contraction. A similar pattern of weak contraction followed by forecast weak expansion is evident in emerging Europe. Elsewhere, credit growth remains much more robust, but has slowed.
In the fastest growing region, Asia, real credit growth will slow sharply this year, particularly in Indonesia, Malaysia, the Philippines and Thailand. Real credit growth in Asia was more than 10% in 2012.
Credit growth will slow much less in Latin America, which will therefore become the fastest growing region in 2013, led by Argentina, Bolivia, Colombia and Peru. Bucking the trend will be Middle East/Africa, which is forecast to see a slight pick-up in credit growth, led by Kenya and Nigeria, though to a relatively slow average pace of 4%-5%.
In 2012, the ratio of credit to GDP for developed countries in aggregate was stable at 163%. In EMs by contrast, credit/GDP continued to trend gradually higher, reaching 48%.
In the developed world, despite substantial falls in some crisis countries, there is no sign of a generally falling trend in credit/GDP. However, because trend credit/GDP generally continues to rise, actual credit/GDP is now below trend in the vast majority of developed countries.
The combination of stable credit/GDP and generally slowing real credit growth explains the continued progression of countries into lower risk categories as measured by Fitch’s MPI. Of the nine changes in MPI scores in this report, three-quarters are to lower risk categories. The main exception is Switzerland, now MPI 2, where credit/GDP rose significantly above trend in 2012.
Of the 11 countries with the highest macro-prudential risk scores (MPI 3), all except Hong Kong are EMs: Argentina, China, Indonesia, Lesotho, Macao, Mongolia, Paraguay, Peru, Sri Lanka and Turkey, Macao and Paraguay are added to Fitch’s coverage this time.
Rapid lending growth remains confined to a handful of emerging markets. Twenty-four countries, virtually all Ems, experienced real credit growth of more than 15% in 2010/11 or 2011/12 and are therefore at least MPI 2.
Half of them are MPI 3. Of these, however, in only two (Belarus and Mongolia) is credit growth sharply accelerating. In another five (Armenia, Indonesia, Lesotho, Rwanda and Venezuela) credit growth has fallen substantially this year.
Based on year-to-date credit growth, further easing of macro-prudential risk scores is likely in the next semi-annual assessment.
Changes in bank Viability Ratings (VR) result in five Fitch Banking System Indicator (BSI) changes: Japan, Bolivia and Greece improve to ‘a’, ‘bb’ and ‘b’ respectively. Slovenia and Cyprus weaken to ‘ccc’ and ‘f’ respectively following this year’s banking crises.
This report updates the systemic risk indicators Fitch has published since 2005. Formerly the Bank Systemic Risk Report, the Macro-Prudential Risk Monitor identifies the build-up of potential stress in banking systems due to a specific set of circumstances: rapid credit growth associated with bubbles in housing or equity markets, or appreciated real exchange rates, the latter sometimes associated with asset market bubbles. The focus of the report is therefore only one potential source of bank systemic stress.