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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 U.S DISTRICT 92 TO 182 DAYS CERTIFICATES U.S DISTRICT 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 92 98 8" 91 90 94 ca SL & LOANS AND SAVING BANKS; CU = CREDIT UNIONS; TYPE OF RETAIL DEPOSIT ACCOUNT OR LOAN SAVINGS ACCOUNTS AND MMDAS 11 ~ / cu ~ OREGON ~ UTAH C8 SL cu C8 SL cu C8 SL CU C8 SL cu 78 97 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 MAY '993 AUG 1993 NOV 1993 FEB 1994 MAY 1994 AUG 1994 NOV 1994 FEB 1995 MAY 1995 2.80 2.96 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
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