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FRBSF

WEEKLY LETTER

Number 95-25, July 28, 1995

Rebound in

u.s. Banks' Foreign Lending

The attitude of u.s. banks toward foreign lending
appears to have changed in the I~st few years.
In the wake of the 1982 debt crisis among less
developed countries (LDCs), U.S. banks were
cautious about foreign lending, because of the
large losses they had to absorb and because of
the uncertain economic outlooks for many countries. Since the end of 1990, however, U.S. banks'
exposure to foreign borrowers has been increasing--especially in Latin America, in rapidly
developing countries in Asia, and in the European Community.
This Weekly Letter examines the recent rise in
U.S. banks' overseas lending on a region-byregion basis. The data for this examination are
from the Federal Reserve System's Country Exposure Lending Survey, which tracks the debts
banks.
foreign borrowers owe to

u.s.

Foreign lending in the 19805 and 19905
In 1983, the
banking system's exposure to
overseas borrowers reached a high of $357.3
billion, or28.6 percent of total
bank loans.
However, after the LDC debt crisis, U.S. banks
scaled back overseas lending dramatically: They
aggressively wrote off loans, they swapped and
converted loans for debt and equity, and they
sold loans on the secondary market. By yearend 1990, overseas lending had fallen to $189.3
billion, or just 9.0 percent of loans.

u.s.

u.s.

Since then, interest in lending to the emerging
market economies has begun to rebound, as have
the data on U.S. foreign loans. From December
1990 to December 1994 the foreign loan exposure
of
banks grew by $43.2 billion. While the
current level of exposure remains well below
the 1983 peak, it does raise the percent of foreign loans relative to total U.S. bank loans from
9 to 10 percent. The patterns of foreign lending in
the 1990s are consistent with the recovery in the
world economy, the growth in trade, and what

u.s.

WESTERn BAnKinG

appears to be improved credit quality in some
emerging-market nations in Latin America and
Asia.
Before proceeding to the region-by-region analysis, two points should be made. First, the players
in the U.S. banking market for foreign lending
tend to be the nation's twenty or so largest banks.
For example, at year-end 1994, 17 of the largest
banks accounted for almost 85 percent of country or foreign loan exposure at U.S. banks. For
more than half of these banks, foreign lending
represents a significant part of their assetsanywhere from 25 percent to over 50 percent.
Second, the exposure of banks in California, as
well as in the rest of the Twelfth District, has not
increased as fast since 1990 as it has for banks
nationally. In part this can be traced to the
pullback in foreign activity by Security Pacific
Bancorp. Only two large California banks had
a significant share of foreign assets (25 percent
and 6 percent) in 1994.

u.s.

Latin America. During the
banks' retrenchment on foreign lending in the 1980s, there was
a major contraction in loans to Latin American
countries-loans fell from over $73 billion at
year-end 1984 to a low of $33 billion in 1991.
Since then, however, lending to Latin American
and Caribbean countries has surged, and in
1994, loans from U.S. banks to this area rose to
$55.4 billion, amounting to almost 24 percent
of
banks' overseas lending.

u.s.

At least through most of 1994,improvement in
the fundamentals of many Latin American economies, along with international efforts to reduce
their debt burdens and to lower their risk ratings,
all appear to have helped revive bank lending
to the region. For example, after hitting lows in
1990, Latin America's composite country credit
rating from Institutional Investor had been rising
along with the region's share of
trade.

U.s.

Western Banking is a quarterly review of banking
developments in the Twelfth Federal Reserve District. It is published in the Weekly Letter on the fourth
Friday of January, April, July, and October.

FRBSf
Another development that reduced the risk of direct lending in this region was the greater use of
third-party guarantees, which minimize the loan
risk faced by
bank lenders. In Latin America,
the share of loans with third-party guarantees
rose from 14.3 percent in 1990 to 21.6 percent
in 1994.

u.s.

The Mexican peso crisis that began in late 1994
may alter the attractiveness of future lending in
this region, but, by the end of 1994, it had not
had a noticeable impact. As Figure 1 shows,
borrowing by Latin American nations increased
$18.3 billion, or 49.1 percent, since the upturn
in international lending in 1990. By 1994 borrowing by both Argentina and Mexico had
grown by more than 50 percent since 1990.
In contrast, exposure to Brazil, which had not
achieved the economic stability shown by other
countries in the region, has only increased about
2 percent since 1990, although it has grown substantially since 1992.

Asia. From 1990 to year-end 1994, U.S. banks'
lending to developing Asian markets rose from
around $13 billion to about $19 billion-an
increase of roughly 45 percent. In fact, u.s.
bank lending to developing Asian countries exceeded lending to Japan. The increase in lending
is consistent with the strong growth and rapid
expansion of trade with emerging market nations
throughout much of the region. The largest borrower was South Korea ($5.9 billion) followed by
Thailand, Taiwan, and the Philippines (each less
than $3 billion). Malaysia, China, Thailand, and
India recorded especially large increases over the
1990-1994 period, as did offshore banking centers in the region, like Hong Kong and Singapore.

Developed Countries. From 1990 to 1994, total
borrowing by developed countries increased almost 15 percent. For U.S banks, this group of
countries represents the largest exposure in foreign lending-$113.9 billion out of a total of
$232.5 billion; within this group, the European
Community (EC) makes up the largest share$70.2 billion at year-end 1994, or over 30 percent of all foreign lending. The largest single
borrowing nation in the EC was the U.K. ($31.2
billion). Other major borrowing countries among
the developed nations and key U.S. trading partners are Japan ($16.6 billion) and Canada ($9.6
billion).
Other Countries. Not every region of the world
has seen increases in lending from U.S. banks.

Figure 1
U.S. Banks' Foreign Loan Exposure
Billions $

80
70

18

60

I

50
40

~: I :~

:i•.:.:

·i.::i. :,:i::I.:;
. : :!
.

o

.1994

it: ::t
.

:1::

:::::1.::: :
::· .1.:

+"""-+'=

lOOl

11.111

+"~'+=

-g

u

w ... Q.
.S .g.~
10 Q) 0 .!!!
~.2
... Q)
...J E Ul

«~«
Q)

o

1990

o

1ij
Q.

III

..,

~

o

Since 1990, borrowing by OPEC nations actually
has declined slightly, and exposure from developing African nations has fallen by almost 29
percent. Despite the opening of Eastern Europe
in 1989 and the pressing need for capital to rebuild those economies and clean up their environmental problems, U.S. bank lending in this
region fell sharply between 1990 and 1992. How7
ever, since 1992 Eastern European borrowing has
more than doubled, reaching $2.6 billion at yearend 1994. The share of Eastern European loans
with third-party guarantees has increased from
6.5 to 15.8 percent since 1990.
Conclusion
Between 1990 and 1994, U.S. banks have renewed their interest in international lending.
While the dollar amount of the increase is sizeable, the expansion has been measured. Even
though the share of foreign loans to total loans
rose by 1 percentage point, overseas loan exposure has continued to decline relative to
capital.

Gary C. Zimmerman
Economist

REGIONAL BANK DATA
MARCH 31. 1995
(NOT SEASONALLY ADJUSTED. PRELIMINARY DATAl
DISTRICT

ALASKA

ARIZ.

CALIF.

HAWAII

IDAHO

NEVADA

OREGON

WASH.

UTAH

FOREIGN
DOMESTIC
LOANS

TOTAL
FOREIGN
DOMESTIC
REAL ESTATE
COMMERCIAL
CONSUMER
AGRICULTURAL
OTHER LOANS

INV. SECURITIES TOTAL
U.S. TREASURIES
U.S. AGENCIES. TOTAL
U.S. AGENCIES. M8S
OTHERMBS
OTHER SECURITIES

23.672
376.562
34.610
341.952
173.914
68.187
65.818
5.929
28.104

2.837
5
2.832
1.328
815
535
3
151

29.322
0
29.322
9.967
3.531
11.998
397
3.429

235.549
33.067
202,481
118.843
40.547
20.635
3.026
19,431

14.896
1,475
13,421
7.873
3.721
1.142
34
652

8.750
0
8.750
2.927
1.836
2.784
770
433

16.928
0
16.928
3.284
996
12.322
16
310

21.280
1
21.279
8.838
5.767
4,452
462
1.759

11.180
0
11.180
4.658
1.936
3.801
167
618

35.820
62
35.758
16.195
9.038
8.149
1.054
1.322

77.184
20.728
21.967
13.966
3.767
30.722

1.933
846
487
369
137
463

8.257
1.633
2.500
2.150
242
3.882

46.372
13.267
12.817
8.082
3.013
17.276

4.523
1.384
1,470
866
19
1.650

1.732
431
573
234
39
6B9

3.546
956
881
531
60
1.650

3.182
742
914
665
12
1.514

3.648
527
1.568
702
BO
1,473

3.992
942
759
368
166
2.126

lIA81L1TIES

TOTAL
DOMESTIC

506.109
455.B65

4.573
4.572

39.053
39.053

326.898
278.933

20.213
lB.OOO

10.753
10.753

21.011
21.011

25.996
25.995

15.848
15.848

41.765
41.700

DEPOSITS

TOTAL
FOREIGN
DOMESTIC
DEMAND
NOW
MMDA & SAVINGS
SMALL TIME
LARGE TIME
OTHER DEPOSITS

407.378
46.610
360.768
94.790
41.651
127,418
66.749
29.753
406

3.909
0
3.909
1.066
362
1.351
561
501
68

31.219
0
31.219
7.078
3.769
11.143
7.530
1.700
0

270.7BO
44.281
226.500
63.548
24.100
81.370
37.464
19.762
255

13.735
2.068
11.667
2.326
1.317
4.095
2.183
1.740
5

8.789
0
8,789
1.739
1.050
2.485
2.578
937
0

9.796
0
9.796
3.156
1,484
3.538
1.00B
610
0

21.507
0
21.507
4.997
3.312
7.177
5.143
866
12

12.291
162
12.129
2.508
1.597
3.966
2.717
1.333
7

35.351
99
35.252
8.371
4.661
12.293
7.565
2.304
58

OTHER BORROWINGS
EQUITY CAPITAL
LOAN LOSS RESERVE
LOAN COMMITMENTS

30.641
47.055
9.667
304.802

590
697
43
804

795
3.800
680
53.183

16.408
28.590
6.849
121.872

3.229
1.883
252
8.026

1.241
945
123
4.368

728
2.661
459
87.594

1.780
2.635
392
13.802

1.943
1.632
235
15.357

3.927
4.211
634
19.797

TIERI CAPITAL RATIO
TOTAL CAPITAL RATIO
LEVERAGE RATIO

0.095
0.122
0.079

0.186
0.197
0.131

0.107
0.128
0.080

0.090
0.121
0.075

0.102
0.120
0.081

0.099
0.116
0.077

0.121
0.142
0.104

0.098
0.114
0.086

0.123
0.138
0.091

0.088
0.112
0.082

10.136
780

100
6

897
61

6.133
507

397
13

225
16

602
18

545
54

353
25

884
80

10.121
3.963
2.396
447
3.314

94
38
27
-2
32

881
314
169
92
306

6.079
2.400
1.605
164
1.911

386
196
89
9
92

214
106
35
7
67

743
228
81
131
303

531
206
125
16
183

390
152
71
17
151

803
324
195
15
269

TAXES
NET INCOME

1.175
1.796

7
16

94
132

721
1.010

34
54

18
34

110
197

65
116

30
48

97
189

ROA (% ANNUALIZEOI
ROE (% ANNUAlIZEDI
NET INTEREST MARGIN 1% ANNUALIZED)

1.33
15.26
4.58

1.25
9.46
4.69

1.25
13.87
5.55

1.17
14.12
4.34

0.98
11.52
3.64

1.13
14.18
4.03

3.38
29.54
6.43

1.63
17.64
4.77

1.11
11.80
4.66

1.67
17.96
4.96

NET CHARGEOFFS. TOTAL
REAL ESTATE
COMMERCIAL
CONSUMER
AGRICULTURAL

0.36
0.29
·0.24
1.75
0.17

·0.56
·0.03
-2.22
0.61
0.00

0.55
·0.28
0.22
1.43
0.21

0.25
0.41
·0.25
1.95
-0.01

0.22
0.29
·0.09
0.99
-0.01

0.18
0.04
·0.32
0.68
0.31

2.19
0.00
·0.42
2.96
0.36

0.29
0.24
-0.27
1.16
-0.75

0.18
·0.05
-0.26
0.79
0.01

0.25
0.04
·0.18
0.99
1.10

PAST DUE & NON-ACCRUAL. TOTAL
REAL ESTATE
CONSTRUCTION
COMMERCIAL
FARM
HOME EQUITY LINES
MORTGAGES
MULTI·FAMILY
COMMERCIAL
CONSUMER
AGRICULTURAL

2.69
3.83
10.96
5.13
4.72
1.39
2.37
9.91
1.84
2.55
2.96

2.46
2.47
4.96
3.14
0.00
0.89
1.83
0.98
2.41
2.05
0.00

2.19
1.98
2.54
4.65
10.49
0.73
1.12
2.30
1.42
3.10
3.37

3.02
4.68
17.29
6.56
4.46
1.51
2.74
14.51
1.85
2.20
2.32

2.84
2.94
2.40
2.94
6.67
1.93
3.64
1.89
3.22
2.76
22.59

1.47
1.13
3.64
0.72
5.62
0.23
1.00
0.00
1.45

1.53
1.54
3.83
2.28
5.78
0.42
0.94
0.48
1.77
1.36
2.46

1.65
1,41
3.00
1.29
12.15
0,48
1.24
0.23
2.04
1.94
1.68

1.65
1.84
5.59
1.91
2.90
1.24
0.98
0.11
1.11

3.57

3.58
2.67
6.01
3.61
0.00
1.58
1.38
0.05
3.34
3.90
0.00

667
222.840

8
2.685

33
27,436

395
129.134

16
8,438

19
4.894

22
9.081

42
13.185

45
8.559

87
19,428

INTEREST
FEES & CHARGES
EXPENSES

TOTAL
INTEREST
SALARIES
LOAN LOSS PROVISION
OTHER

NUMBER OF BANKS
NUM8ER OF EMPLOYEES

1.":1

1.64

4.12

Opinions expressed in this newsletter do not necessarily reflect the views of the management of the Federal Reserve Bank of
San Francisco, or of the Board of Governors of the Federal Reserve System. Editorial comments may be addressed to the editor
or to the author. Free copies of Federal Reserve publications can be obtained from the Public Information Department, Federal
Reserve Bank of San Francisco, P.O. Box 7702, San Francisco 94120. Phone (415) 974-2246, Fax (415) 974-3341. Weekly Letter
texts and other FRBSF publications and data are available on FedWest Online, a public bulletin board service reached by setting
your modem to dial (415) 896-0272.

Research Department

Federal Reserve
Bank of
San Francisco
P.O. 80x 7702

Address Correction Requested

San Francisco,CA 94120

P~inted on recycled paper ~ ~,
with soybean inks.
\V ~

PERCENT OF COMBINED MARKET TOTAL FOR MAY 1995, BY REGION

ALASKA

DISTRICT
DEPOSIT TYPE

ca

TOTAL DEPOSITS

57 35
6
9'
66 25
63 26
33 61
49 43

DEMAND
NOW
SAVINGS & MMDAS
SMALL TIME

LARGE TIME
CB -

SL cu

8
3
'0
11

6
9

~

ca

SL cu

ca

71
97
61
57
72
93

25
3
33
39
23
5

92
98
"7

COMMERCIAL BANKS;

SL cu

1
0
0
0
2

8
2
12

"" ,

93
91

SL - SAVINGS

11

5
8

~
ca

SL cu

7
50 43
89
7
8
60 32
59 32
9
23 71
5
40 50 '0

•

~

~

SL

cu

C8

68 23
95
1
6" 27
62 25
55 40
75 '7

9
4
5
14
5
a

SL

& LOANS AND SAVING BANKS; CU = CREDIT UNIONS;

~

cu

OREGON

~

UTAH

C8

SL cu

C8

SL cu

C8

SL CU

C8

SL cu

78
97

92
98
8"
91
90
94

ca

17

5
0
9
'0
6
0

77

13
6
'0
13
20
20

81
92
8'
76
80
a6

16
5

57
92
66
55
42

33
7
20
26
5'
54

3

77

"

75
44

9'

15
50
9

9'
"0
74
70
73

'0
3
10
13
10
7

'"

23

"
'0

44

MAY NOT SUM TO 100% DUE TO ROUNDING

FEB
- '993

SAVINGS ACCOUNTS AND MMDAS

U.S
DISTRICT

92 TO 182 DAYS CERTIFICATES

U.S
DISTRICT

/

MAY
'993

AUG
1993

NOV
1993

FEB
1994

MAY
1994

AUG
1994

NOV
1994

FEB
1995

MAY
1995

2.80
2.96

TYPE OF RETAIL DEPOSIT ACCOUNT OR LOAN

2.65
2.78

2.55
2.67

2.48
2.58

2.43
2.56

2.50
2.65

2.63
2.81

2.80
2.88

3.09
2.96

3.21
3.36

3.08
3.01

2.98
2.B8

2.96
2.85

2.92
2.81

2.93
2.83

3.28
3.03

3.61
3.34

4.22
3.84

4.83
4.47

4.93
4.61

2-112 YEARS AND OVER CERTIFICATES

U.S
DISTRICT

4.59
4.41

4.45
4.27

4.40
4.19

4.28
4.09

4.35
4.13

4.89
4.58

5.33
4.96

6.08
5.52

6.52
6.02

6.11
5.98

COMMERCIAL SHORT TERM FIXED

U.S
DISTRICT

4.16
4.28

3.91
4.19

4.02
4.75

3.95
4.43

4.03
4.95

4.68
6.78

5.28
5.39

5.67
6.32

6.89
6.39

6.95
7.32

COMMERCIAL SHORT TERM FLOATING

U.S
DISTRICT

5.85
6.36

5.58
5.40

5.53
6.48

5.56
6.46

5.49
6.36

6.32
6.38

6.83
7.34

7.36
7.78

8.50
9.17

8.88
8.94

COMMERCiAL LONG TERM FiXED

U.S
DISTRICT

6.43
9.19

6.02
10.86

c.2i

5.38
6.62

5.41

8.05

6.58

6.17
N/A

5.56
9.82

7.30
N/A

8.20
N/A

8.87
N/A

COMMERCIAL LONG TERM FLOATING

U.S
DISTRICT

6.38
8.43

6.47
8.55

6.05
8.77

5.70
7.68

5.98
8.16

6.61
N/A

6.99
N/A

7.59
N/A

9.00
N/A

8.94
N/A

CONSUMER, AUTOMOBILE

U.S
DISTRICT

8.57
8.98

8.17
8.23

7.98
8.09

7.63
7.70

7.54
7.68

7.76
7.86

8.41
8.15

8.75
8.41

9.70
9.63

9.78
9.94

CONSUMER. PERSONAL

U.S
DISTRiCT

13.57
12.67

13.63
13.87

13.45
12.69

13.22
13.00

12.89
12.02

12.96
12.26

13.33
13.37

13.59
12.87

14.10
14.55

14.03
14.67

CONSUMER, CREDIT CARD

U.S
DISTRICT

17.26
17.76

17.15
17.60

16.59
17.58

16.30
17.00

16.06
17.17

16.15
17.61

16.25
17.34

15.91
16.33

16.24
15.60

16.15
16.44

SOURCES: MONTHLY SURVEY OF SELECTED DEPOSITS. SURVEY OF TERMS OF 8ANK LENDING. AND TERMS OF CONSUMER CREDIT
MOST COMMON INTEREST RATES ON RETAIL OEPOSITS. WEIGHTED AVERAGE INTEREST RATE ON LOANS

,

11

14

'"

7
2