Economics & Strategy

Basle-based BIS statistics provides some clues to major trends in international indebtness

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(for the week of 6-9 January 1998)

BIS' semi-annual survey provides some clues to international indebtness in Asia

Asia's biggest debtors and creditors: The Basle-based Bank of International Settlements conducts a semi-annual survey on international banking statistics, the latest being the end-June 1997 position. The status of international indebtedness is reported by reporting banks/creditors in G-10 member countries (Belgium, Canada, France, Germany, Italy, Japan, Holland, Sweden, UK and US) as well as Austria, Denmark, Finland, Ireland, Luxembourg, Norway and Spain. The statistics, recently released through its monetary and economics department showed that region-wide, Asia had the largest outstanding debt among developing countries at US$389.4b vs Latin America's US$251.1b. The biggest creditors in Asia are Japan (US$123.8b), Germany (US$47.2b), France (US$40.4b) and the United States (US$32.3b).

Growing short-term obligations and high non-bank borrowers: But the most significant revelation in the survey on Asia's indebtedness are two-fold: Firstly, a sharp rise in short-term maturity debts for most Asian (and Eastern European) countries. While Eastern Europe's trend has been pinned down to changes in the reporting method, Asia has a different story, where the persistence of large short-term credit flows to major borrowers, except to Thailand, is noted during 1H97. This may have been aggravated by 2H97 due to reduced availability of funding sources, enhanced demand for forex for hedging/speculative purposes and the rollover of credit lines into short-term facilities. Secondly, the distribution by sector shows a growing weight of lending to non-bank borrowers in Asia: By the end of June 1997, non-bank borrowers accounted for 48.5% of the total outstanding debts, compared with 47.6% as at end-1996. The reason: fiscal consolidation, privatisation, international trade and difficulties experienced by local banking systems have been some of the underlying factors supporting the trend.

Asia's troubled countries have both symptoms: Short-term loans accounted for a large proportion of new lending in Asia at 62% of total debts, with high incidence in South Korea (68%), Thailand (66%), Malaysia (56%). This has been one of the reasons for the collapse of the economy and financial systems in South Korea and Thailand, where IMF bailouts have been sought. South Korea, for example, had nearly US$103.4b of debt, of which US$70.2b are due before June 1998. It should also come as no surprise that its banking system wilted under the scenario; some 65% (US$67.3b) of its external liabilities was incurred by the local banks while non-bank private sector (mainly chaebols) accounted for another 31% or US$31.7b. South Korea's largest creditors are Japan (US$23.7b), Germany (US10.8b), France (US$10.1b) and the US (US$10b). The lending banks are Chase Manhattan, Citibank, Tokyo-Mitsubishi and the HSBC group.

In Thailand, the debt profile is not quite dissimilar to South Korea's. Of its US$69.4b international debts, 66% or US$45.6b are due by June 1998. Among the largest borrowers are the banks (US$26.1b), but non-bank private sector was more aggressive in the easy-credit binge by running up US$41.3b of borrowings. Thailand's debts are mainly financed by Japan, Germany and the US. Despite what have been said of the Malaysian economy and its predicted "bankruptcy," the BIS statistics are less scrupulous in its implications. Malaysia had an external debt of US$28.8b of which 56% or US$16.3b are due within one year, which is cushioned by its RM60b-odd reserves. The banking sector's exposure and the private sector's borrowings appear to be manageable at US$10.5b and US$16.5b, respectively.

The 1H97 survey showed no evidence of lending abating (+US$32b) in Southeast Asia. There was acceleration in India, Malaysia and Taiwan, matched by slowdown in Indonesia, South Korea and Thailand. But the most recent BIS quarterly survey pointed to a drying-up of banking funds to Thailand, and a sharp cutback for Malaysia between the first and second quarters.

European banks were most aggressive lenders: European banks accounted for some three-quarters of increase in debts in the two regions in 1H97. While Spanish banks led their foray in Latin America, the presence of German, UK and French banks were felt in Asia. Overall, Japanese banks remained the single largest individual group of creditors in Asia, accounting for 32% of all debts there. Its share was highest in Thailand (54%), Indonesia (39%), Malaysia (36%) China (32%) and South Korea (23%).

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