Credit Fluctuations in Latin America: Stylized Facts and Policy Issues
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Credit Fluctuations in Latin Credit Fluctuations in Latin America: America: Stylized Facts and Policy Stylized Facts and Policy Issues Issues XXV Meeting of the Latin American XXV Meeting of the Latin American Network of Central Banks and Network of Central Banks and Finance Ministries Finance Ministries Washington, DC Washington, DC 17-18 May 2007 17-18 May 2007 Augusto de la Torre Augusto de la Torre
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Credit Fluctuations in Latin America: Stylized Facts and Policy Issues. XXV Meeting of the Latin American Network of Central Banks and Finance Ministries Washington, DC 17-18 May 2007 Augusto de la Torre. Structure of presentation. Stylized facts Depth, volatility, co-movement, funding - PowerPoint PPT Presentation
Transcript of Credit Fluctuations in Latin America: Stylized Facts and Policy Issues
Credit Fluctuations in Latin America:Credit Fluctuations in Latin America:
Stylized Facts and Policy IssuesStylized Facts and Policy Issues
XXV Meeting of the Latin American XXV Meeting of the Latin American Network of Central Banks and Finance Network of Central Banks and Finance
MinistriesMinistries
Washington, DCWashington, DC17-18 May 200717-18 May 2007
Augusto de la TorreAugusto de la Torre
2
Structure of presentationStructure of presentation
Stylized factsDepth, volatility, co-movement, funding
IssuesAre banking systems sounder overall?
Are banks moving to fill the access gaps?
Are risks masked by current upswing phase?
New dimensions of prudential policy?
3
Average credit growth picked up Average credit growth picked up vigorously…vigorously…
Latin America: Real Growth in Bank Credit to the Private Sector simple average, annual basis
-40
-30
-20
-10
0
10
20
30
40
Q1
1990
Q4
1990
Q3
1991
Q2
1992
Q1
1993
Q4
1993
Q3
1994
Q2
1995
Q1
1996
Q4
1996
Q3
1997
Q2
1998
Q1
1999
Q4
1999
Q3
2000
Q2
2001
Q1
2002
Q4
2002
Q3
2003
Q2
2004
Q1
2005
Q4
2005
Countries: Argentina, Bolivia, Chile, Colombia, Costa Rica, Ecuador, El Salvador, México, Perú.Real Growth: Nominal credit deflated by CPI. Source: IMF International Financial Statistics.
4
...but is still low as ratio to GDP...but is still low as ratio to GDP
Private credit from banks and other credit institutions. Source: Financial Structure Database, World Bank.LAC: Argentina, Bolivia, Chile, Colombia, Costa Rica, Ecuador, El Salvador, México, Perú; OECD: Canada, Germany, Japan, UK, and US; SEA: Indonesia, Korea, Malaysia, Philippines, and Thailand
Credit to the Private Sector across Regions
0
20
40
60
80
100
120
140
160
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
% of GDP
SEA OECD LAC
5
Local markets for debt finance remain Local markets for debt finance remain small…small…
0%
25%
50%
75%
100%
125%
150%
175%
200%
Argentina
Brazil
Chile
Colom
bia
Mexico
Peru
Korea
Malaysia
Thailand
France
Japan
U.S
.
Credit to the Private Sector by Financial Institutions Stock Market Capitalization
Amount Outstanding of Private Sector Domestic Bonds
n/a
Percentage of GDP, 2004250%
Source: BIS, IMF International Financial Statistics, S&P Emerging Markets Database, World Bank.
6
But local corporate bond markets taking But local corporate bond markets taking off in some countries … like Chileoff in some countries … like Chile
Chile: Oustanding Corporate Debt Securities (Billions Dollars)
0
2
4
6
8
10
12
14
16
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Domestic
International
Source: Bank for International Settlements
7
Mexico…Mexico…
Mexico: Oustanding Corporate Debt Securities (Billions Dollars)
0
5
10
15
20
25
30
35
40
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Domestic
International
Source: Bank for International Settlements
8
… … and to a much lesser extent, and to a much lesser extent, ColombiaColombia
Colombia: Outstanding Corporate Debt Securities (Billions Dollars)
0
0.2
0.4
0.6
0.8
1
1.2
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Domestic
International
Source: Bank for International Settlements
9
Bank credit growth has been quite Bank credit growth has been quite volatile…volatile…
Real Growth in Credit to the Private Sector
Argentina
-50
-40
-30
-20
-10
0
10
20
30
40
Q1
1991
Q4
1991
Q3
1992
Q2
1993
Q1
1994
Q4
1994
Q3
1995
Q2
1996
Q1
1997
Q4
1997
Q3
1998
Q2
1999
Q1
2000
Q4
2000
Q3
2001
Q2
2002
Q1
2003
Q4
2003
Q3
2004
Q2
2005
Q1
2006
Q4
2006
Brazil
-60
-40
-20
0
20
40
60
80
100
Q1
1991
Q4
1991
Q3
1992
Q2
1993
Q1
1994
Q4
1994
Q3
1995
Q2
1996
Q1
1997
Q4
1997
Q3
1998
Q2
1999
Q1
2000
Q4
2000
Q3
2001
Q2
2002
Q1
2003
Q4
2003
Q3
2004
Q2
2005
Q1
2006
Q4
2006
Bolivia
-20
-10
0
10
20
30
40
Q1
1991
Q4
1991
Q3
1992
Q2
1993
Q1
1994
Q4
1994
Q3
1995
Q2
1996
Q1
1997
Q4
1997
Q3
1998
Q2
1999
Q1
2000
Q4
2000
Q3
2001
Q2
2002
Q1
2003
Q4
2003
Q3
2004
Q2
2005
Q1
2006
Q4
2006
Chile
-10
-5
0
5
10
15
20
25
Q1 1
991
Q4 1
991
Q3 1
992
Q2 1
993
Q1 1
994
Q4 1
994
Q3 1
995
Q2 1
996
Q1 1
997
Q4 1
997
Q3 1
998
Q2 1
999
Q1 2
000
Q4 2
000
Q3 2
001
Q2 2
002
Q1 2
003
Q4 2
003
Q3 2
004
Q2 2
005
Q1 2
006
Q4 2
006
Source: IMF International Financial Statistics.
10
Real Growth in Bank Credit to the Private Sector
Colombia
-20
-15
-10
-5
0
5
10
15
20
25
30
35
Q4
1991
Q1
1993
Q3
1993
Q1
1994
Q3
1994
Q1
1995
Q3
1995
Q1
1996
Q3
1996
Q1
1997
Q3
1997
Q1
1998
Q3
1998
Q1
1999
Q3
1999
Q1
2000
Q3
2000
Q1
2001
Q3
2001
Q1
2002
Q3
2002
Q1
2003
Q3
2003
Q1
2004
Q3
2004
Q1
2005
Q3
2005
Q1
2006
Q3
2006
Costa Rica
-30
-20
-10
0
10
20
30
40
50
60
Q1 1
991
Q4 1
991
Q3 1
992
Q2 1
993
Q1 1
994
Q4 1
994
Q3 1
995
Q2 1
996
Q1 1
997
Q4 1
997
Q3 1
998
Q2 1
999
Q1 2
000
Q4 2
000
Q3 2
001
Q2 2
002
Q1 2
003
Q4 2
003
Q3 2
004
Q2 2
005
Q1 2
006
Q4 2
006
Ecuador
-80
-60
-40
-20
0
20
40
Q1
1991
Q4
1991
Q3
1992
Q2
1993
Q1
1994
Q4
1994
Q3
1995
Q2
1996
Q1
1997
Q4
1997
Q3
1998
Q2
1999
Q1
2000
Q4
2000
Q3
2001
Q2
2002
Q1
2003
Q4
2003
Q3
2004
Q2
2005
Q1
2006
Q4
2006
Mexico
-50
-40
-30
-20
-10
0
10
20
30
40
50
Q1
1991
Q4
1991
Q3
1992
Q2
1993
Q1
1994
Q4
1994
Q3
1995
Q2
1996
Q1
1997
Q4
1997
Q3
1998
Q2
1999
Q1
2000
Q4
2000
Q3
2001
Q2
2002
Q1
2003
Q4
2003
Q3
2004
Q2
2005
Q1
2006
Q4
2006
Source: IMF International Financial Statistics.
Bank credit growth has been quite Bank credit growth has been quite volatile…volatile…
11
Co-movement of bank credit across Co-movement of bank credit across countriescountries
Real Growth in Credit to the Private Sector, %
Source: IMF International Financial Statistics.
12
Lending capacity and creditLending capacity and creditArgentina
0.0E+00
2.0E+10
4.0E+10
6.0E+10
8.0E+10
1.0E+11
1.2E+11
1.4E+11
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Real lending capacity Real private credit
Real LCU
Brazil
0.0E+00
2.0E+11
4.0E+11
6.0E+11
8.0E+11
1.0E+12
1.2E+12
1.4E+12
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Real lending capacity Real private credit
Real LCU
Mexico
0.0E+005.0E+11
1.0E+121.5E+12
2.0E+122.5E+123.0E+12
3.5E+124.0E+12
4.5E+125.0E+12
199
0
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
Real lending capacity Real private credit
Real LCU
Costa Rica
0.0E+00
5.0E+11
1.0E+12
1.5E+12
2.0E+12
2.5E+12
3.0E+12
3.5E+12
4.0E+12
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Real lending capacity Real private credit
Real LCU
Source: IMF International Financial Statistics.
13
Colombia
0.0E+00
1.0E+13
2.0E+13
3.0E+13
4.0E+13
5.0E+13
6.0E+13
7.0E+13
8.0E+13
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Real lending capacity Real private credit
Real LCU
Peru
0.0E+00
2.0E+10
4.0E+10
6.0E+10
8.0E+10
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Real lending capacity Real private credit
Real LCU
Chile
0.0E+00
1.0E+13
2.0E+13
3.0E+13
4.0E+13
5.0E+13
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Real lending capacity Real private credit
Real LCU
Source: IMF International Financial Statistics.
Lending capacity and credit (cont.)Lending capacity and credit (cont.)
14
Changing composition of loan portfolioChanging composition of loan portfolio
Chile
0.0E+00
1.0E+10
2.0E+10
3.0E+10
4.0E+10
5.0E+10
6.0E+10
7.0E+10
8.0E+10
9.0E+10
Q1
2002
Q3
2002
Q1
2003
Q3
2003
Q1
2004
Q3
2004
Q1
2005
Q3
2005
Q1
2006
Q3
2006
Mortgage
Consumer
Corporate
Mexico
0.0E+00
1.0E+102.0E+10
3.0E+10
4.0E+105.0E+10
6.0E+10
7.0E+10
8.0E+109.0E+10
1.0E+11
Q1
2000
Q3
2000
Q1
2001
Q3
2001
Q1
2002
Q3
2002
Q1
2003
Q3
2003
Q1
2004
Q3
2004
Q1
2005
Q3
2005
Q1
2006
Q3
2006
Mortgage
Consumer
Corporate
Peru
0.0E+00
2.0E+09
4.0E+09
6.0E+09
8.0E+09
1.0E+10
1.2E+10
1.4E+10
1.6E+10
Q1
2000
Q3
2000
Q1
2001
Q3
2001
Q1
2002
Q3
2002
Q1
2003
Q3
2003
Q1
2004
Q3
2004
Q1
2005
Q3
2005
Q1
2006
Q3
2006
Mortgage
Consumer
Corporate
Argentina
0.0E+00
2.0E+09
4.0E+09
6.0E+09
8.0E+09
1.0E+10
1.2E+10
1.4E+10
Q1
2003
Q2
2003
Q3
2003
Q4
2003
Q1
2004
Q2
2004
Q3
2004
Q4
2004
Q1
2005
Q2
2005
Q3
2005
Q4
2005
Q1
2006
Q2
2006
Q3
2006
Q4
2006
Mortgage
Consumer
Corporate
15
Are Latin banking systems sounder Are Latin banking systems sounder overall?overall?
Average
0
5
10
15
20
25
Compliant and Largely CompliantPrinciples
Materially Non-Compliant and Non-Compliant Principles
Initial Assessment
Update
Guatemala
-
5
10
15
20
25
30
Compliant and Largely Compliant Principles Materially Non-Compliant and Non-CompliantPrinciples
Initial Assessment
Update
Mexico
0
5
10
15
20
25
30
Compliant and Largely CompliantPrinciples
Materially Non-Compliant and Non-Compliant Principles
Initial Assessment
Update
Peru
-
5
10
15
20
25
30
35
Compliant and Largely Compliant Principles Materially Non-Compliant and Non-CompliantPrinciples
Initial Assessment
Update
Source: IMF-World Bank Financial Sector Assessment Program
Selected Latin American Countries:
Improvements in Compliance with BCPs between FSAPs
16
Are Latin banking systems sounder? Are Latin banking systems sounder? (cont.)(cont.)
General direction is towards more robust macro and prudential (including exit) frameworks
Trend towards enhanced risk management practices, especially in more internationalized banking systems
Stronger bank financial statements – but not clear how much is due to the cyclical mirage
Contractual and informational environments clearly improving in a number of countries
17
Are banks filling access gaps?Are banks filling access gaps?
Mass, homogeneous credit products lead the pack –combination of technology, credit bureaus & competition
Consumer credit – including competition from department stores
Consolidation of microfinance industry
Housing finance on the move, but to a lesser extent
Corporate debt markets – competition from local and international capital markets
Middle segment – varying stories, but positive direction
18
Are risks masked by current upswing Are risks masked by current upswing phase?phase?
No room for complacency, even if the menace of sudden stops in capital flows has subsided…
Loanable funds “glut” feeding asset price bubbles
“Good times are bad times for learning” (Gavin & Hausmann)
Scoring methods based on limited data series
Currency mismatches appear contained but unknown extent of duration mismatches
19
Selected prudential policy challengesSelected prudential policy challenges
A sensible transition to Basel IIE.g., differential impacts, implementation issues
Compatibility with modern business models and risk management practices
E.g., definition of SME, links between screening tools and capital and provisions policies
Forward-looking, cycle-sensitive provisioning & capital rules
E.g., countercyclical provisions
20
ENDEND
21
Capital requirements depend on credit rating, Capital requirements depend on credit rating, with different effects under IRB vs. SAwith different effects under IRB vs. SA
Source: Stephanou and Mendoza (2005)
22
… … and hence can vary greatly in case of and hence can vary greatly in case of SMEsSMEs
100 100
33
134
Developed Developing
SA
IRB
PD: 0.2% (BBB)
LGD: 40%
PD: 4.5% (B)
LGD: 50%
Source: BBVA (2004)
