Behind Bank credit fluctuations in Latin America during the 1990s : old and new suspects (original) (raw)
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Credit Stagnation in Latin America
SSRN Electronic Journal, 2000
This study examines a troubling phenomenon occurring recently in several Latin American economies: a marked slowdown in bank credit to the private sector. Based on the study of five countries (Argentina, Bolivia, Colombia, Peru, and Mexico), we first document the magnitude of the problem, asking how severe and prolonged has the slowdown been and how this behavior compare with the past? Second, we explore how commercial bank balance sheets have changed in order to understand whether the credit slowdown is merely a reflection of a slowdown in bank deposits or whether the asset side has changed. Third, drawing on the disequilibrium approach used in recent studies of credit slowdowns in the aftermath of financial crises in East Asia and in Finland (Pazarbasioglu, 1997), we investigate in a systematic manner the possible causes for the slowdown in Colombia, Mexico, and Peru. Among supply factors, we explore whether banks have experienced a squeeze in loanable funds, or have become more cautious in their lending in response to deteriorating macroeconomic conditions, past accumulated credit risk and/or tightened regulation. Likewise, demand for credit may have contracted as a result of slowing economic activity or the emergence of substitutes for bank credit, such as financing from abroad. Finally, we decompose the estimated shifts in supply to identify major differences in the expansion and slowdown phases for each country and across countries. JEL Classification Number: G21
Why Don't They Lend? Credit Stagnation in Latin America
Imf Staff Papers, 2002
and Venezuela-the magnitude of the slowdown is documented, comparing it to historical behavior and to similar episodes in other regions of the world. Second, changes in bank balance sheets are examined to determine whether the credit slowdown is merely a reflection of a downturn in bank deposits or whether the asset side has changed. Third, following an econometric disequilibrium approach used in recent studies of bank credit in East Asia and Finland, the paper investigates the possible causes in three countries: Colombia, Mexico, and Peru. While both supply and demand factors appear to have played key roles, their relative importance has varied across the three countries. [JEL G21] A fter experiencing moderate to high rates of growth during most of the 1990s, several Latin American countries witnessed a significant slowdown over the past two years. As Table 1 illustrates,
Determinants of South American bank credit: An approach to panel data
Estudios económicos, 2020
The objective of this paper is to analyze the determinants of the domestic banking credit in the South American countries, based on panel data, for the period 2000 to 2016. The results indicate that domestic deposits and liabilities to non-residents contribute positively to the growth of private credit, with domestic funding having a more representative impact than foreign funding. Economic growth leads to a greater demand for credit and an increase in credit, while higher domestic and US interest rates reduce credit growth. Rising inflation also negatively affect private sector credit. In addition, as regards credit composition, domestic deposits and economic growth are the main components of credit expansion, and, in turn, inflation and domestic interest rates contribute negatively.
Credit at Times of Stress: Latin American Lessons from the Global Financial Crisis
SSRN Electronic Journal, 2000
The financial systems in emerging market economies during the 2008-09 global financial crisis performed much better than in previous crisis episodes, albeit with significant differences across regions. For example, real credit growth in Asia and Latin America was less affected than in Central and Eastern Europe. This paper identifies the factors at both the country and the bank levels that contributed to the behavior of real credit growth in Latin America during the global financial crisis. The resilience of real credit during the crisis was highly related to policies, measures and reforms implemented in the pre-crisis period. In particular, we find that the best explanatory variables were those that gauged the economy's capacity to withstand an external financial shock. Key were balance sheet measures such as the economy's overall currency mismatches and external debt ratios (measuring either total debt or short-term debt). The quality of pre-crisis credit growth mattered as much as its rate of expansion. Credit expansions that preserved healthy balance sheet measures (the "quality" dimension) proved to be more sustainable. Variables signalling the capacity to set countercyclical monetary and fiscal policies during the crisis were also important determinants. Moreover, financial soundness characteristics of Latin American banks, such as capitalization, liquidity and bank efficiency, also played a role in explaining the dynamics of real credit during the crisis. We also found that foreign banks and banks which had expanded credit growth more before the crisis were also those that cut credit most. The methodology used in this paper includes the construction of indicators of resilience of real credit growth to adverse external shocks in a large number of emerging markets, not just in Latin America. As additional data become available, these indicators could be part of a set of analytical tools to assess how emerging market economies are preparing themselves to cope with the adverse effects of global financial turbulence on real credit growth.
The boom and bust of Latin American lending, 1970–1992
Journal of Economics and Business, 1996
External borrowing by debtors in Latin America has followed a rollercoaster pattern during the past two decades. From 1970-1981, the growth of external borrowing averaged 27% per year across the region, while from 1982-1992 foreign debt grew at a rate of 4.3% per year. This paper analyzed the factors which contributed to this pattern of borrowing, from the perspectives of both the lenders (particularly commercial banks) and the borrowers (particularly national governments). A pooled cross-section, time series model was estimated to explain the growth of foreign debt in 18 Latin American countries during the period 1970-1992. In the full period and in one or both sub-periods individually, the growth of foreign debt was significantly positively correlated with GNP and per capita GNP. Debt growth was significantly negatively correlated with the country's trade balance.
2000
he banking sector in Latin America has undergone major changes in the recent past. Moving from highly controlled systems in which governments set interest rates, directed credit, and held a large share of bank deposits as required reserves, countries freed commercial banks to make their own decisions about borrowers, loan volume, and prices. At approximately the same time, capital account liberalization enabled local banks to engage in transactions in foreign currencies and allowed foreign institutions to enter local markets. Frequently such changes were made without having in place an adequate regulatory and supervisory system, which compounded problems for bankers without sufficient experience in credit analysis of local borrowers, much less the complexities of international financial markets. In addition, in some cases the abrupt integration of financial systems of widely different structure, size, and depth was in itself a source of instability. 2 The typical results of such multifaceted processes were credit booms, often rapidly expanding mismatches between maturities and currencies, followed by banking crises. Government rescues tended to follow, in a standard package: in the first instance, they involved takeover of nonperforming loans, recapitalization of banks, and liquidations and mergers, usually involving foreign institutions.
Credit in Times of Stress: Lessons from Latin America during the Global Financial Crisis
Review of Development Economics, 2015
The 2007-09 global financial crisis disrupted the provision of credit in Latin America less than previous crises. We identify key initial macroeconomic conditions that contributed to the higher resilience of real credit in Latin America during this episode. These relate to economies' capacity to withstand an external financial shock and the scope for countercyclical macroeconomic policies. We also show that in most cases current macroeconomic fundamentals have deteriorated relative to those in 2007.
Foreign Banks and Credit Volatility: The Case of Latin American Countries
Review of International Economics, 2012
Foreign bank presence has substantially increased in Latin America during the second half of the 1990s, which has prompted an intense debate on its banking and macroeconomic consequences. In this paper, we apply ARCH techniques to jointly estimate the impact of foreign bank presence on the level and volatility of real credit in a panel of eight Latin American countries, using quarterly data over the period 1995:1-2001:4. Results show that, together with financial development, foreign bank presence has contributed to reduce real credit volatility, improving the buffer shock function of the banking sector. This finding is consistent with the fact that foreign banks are typically well diversified institutions holding higher quality assets and having access to a broad set of liquidity sources.