- Banks’ cross-border claims rose by $479 billion during Q2 2023 to reach $37.7 trillion (+2% year on year (yoy)), driven by derivatives valuations.
- Cross-border bank credit (ie loans and holdings of debt securities) fell by $60 billion during Q2, pushing the yoy growth rate of credit down to 1%.
- In the first half of 2023, bank credit to non-bank financial institutions (NBFIs) swelled (+$331 billion), mainly to NBFIs located in the major financial centres.
- Bank credit to emerging market and developing economies (EMDEs) dropped by $57 billion (–4% yoy) in Q2. The yoy decline in dollar credit (–8%) was the largest in the past decade.
- The BIS global liquidity indicators (GLIs) in Q2 2023 show a contraction in both dollar and euro credit to non-banks in EMDEs compared with a year earlier.
Amid weak credit growth, credit to NBFIs swelled
The BIS locational banking statistics (LBS) show that banks’ global cross-border claims rose by $479 billion (+2% yoy) during the second quarter of 2023 on an FX- and break-adjusted basis (Graphs 1.A and 1.E). This pushed the outstanding stock of claims to $37.7 trillion (Annex Graph A.1).1 The increase in claims was due to the rise in the market value of derivatives (+$517 billion) amid changing expectations about future path of monetary policy in major currencies.
By contrast, the yoy growth in cross-border bank credit slowed further in Q2 (Graph 1, lower panels). Bank credit comprises loans and banks’ holdings of debt securities but excludes derivatives; its rate of growth fell to 1% yoy. While growth in credit to advanced economies (AEs) remained positive, the overall slowdown was driven by credit to EMDEs, which shrank by 4% yoy (Graph 1.F).
Regarding sectors, a key development was that cross-border bank credit to non-bank financial institutions (NBFIs) rose substantially in the first half of 2023 (Graph 2.A). NBFIs attracted $331 billion in new credit from international banks during this period, mainly due to stronger dollar credit, which grew at a rate of 8% yoy at end-June 2023 (Graph 2.B). The dollar credit expansion more than offset a fall in euro credit and left banks’ overall cross-border credit to NBFIs at almost $7 trillion, or 23% of total cross-border credit. Most of the new credit went to NBFIs located in international financial centres (Graph 2.C).
Cross-border dollar credit to EMDEs continued to decline
Looking at borrower locations, cross-border bank credit to advanced economies (AEs) declined marginally during Q2, by $11 billion overall (Graph 1.B). As a result, the stock of credit to AEs reached $24.6 trillion, and its yoy growth remained positive at 2% (Graph 1.F), largely unchanged from the previous quarter. Within the AEs, cuts in credit to counterparties in the United States, Germany and the United Kingdom offset expansions in credit to those in Italy, Canada and Japan (Graph 1.C). Across currencies, growth in dollar credit to AEs accelerated (Graph 1.F), reaching 4% yoy. By contrast, growth in euro credit to AEs slowed to 1% yoy.
Cross-border bank credit to EMDEs continued to decline in Q2, this time by $57 billion (Graph 3.A). This reduced the yoy growth rate to –4% (Graph 1.F), the lowest rate Q2 2016. This reflected mainly a slowdown in bank credit denominated in US dollars (Graph 3.B). In fact, dollar credit growth peaked in Q4 2021 at 4% yoy (Graph 3.C), the quarter before the Federal Reserve started its interest rate tightening cycle; growth has since turned negative, reaching –8% yoy at end-Q2 2023, the fastest rate of contraction since 2012.
Across EMDE regions, credit to borrowers in Asia-Pacific has declined the most (Graph 3.A), reflecting a drop in credit booked via banks’ related offices (Graph 3.D). As a result, dollar credit to the region shrank by 11% yoy (Graph 3.C), mostly for borrowers in Hong Kong SAR and China (Graph 4.A).
Growth in dollar credit to borrowers in Africa and the Middle East has also slowed noticeably in recent quarters (Graph 3.C). Over the period Q4 2021 to Q2 2023, dollar credit to borrowers in this region has fallen by a combined $24 billion, with the largest contractions observed for borrowers in Saudi Arabia and the United Arab Emirates (Graph 4.B). This reduced the yoy growth in dollar credit to the region to –7% yoy (Graph 3.C), down from a recent high of 5% at end-2021. By contrast, dollar credit to Latin America continued to expand in Q2 2023 (Graph 3.C). This was driven mainly by demand from borrowers located in Brazil, Mexico and Chile (Graph 4.C).
Global liquidity indicators at end-June 2023
The BIS global liquidity indicators (GLIs) track total credit to non-bank borrowers, covering both loans extended by banks and funding from global bond markets through the net issuance (gross issuance less redemptions) of international debt securities (IDS). The main focus is on foreign currency credit denominated in the three major reserve currencies (US dollars, euros and Japanese yen) to non-residents, ie borrowers outside the respective currency areas.2
Foreign currency credit in the three major currencies rose slightly in Q2 2023. The quarterly increase of $77 billion in US dollar credit to non-banks outside the United States left the outstanding stock at $13 trillion (Graph 5.A, solid red line). Even so, the yoy growth rate remained negative at –2% (Graph 5.B, solid red line). Euro-denominated credit to non-banks outside the euro area stabilised at €4 trillion (Graph 5.A, solid blue line), up 4% from a year earlier. Yen credit outside Japan continued to expand rapidly, driven by bank loans. The outstanding stock reached ¥58 trillion ($400 billion), up 16% from a year earlier (Graph 5.B, solid yellow line).
For non-banks in EMDEs, growth in credit denominated in dollars, euro and yen diverged. After three consecutive quarterly contractions, dollar credit to EMDEs remained weak in Q2 2023, leaving the stock near $5.1 trillion (Graphs 5.A and 5.C). Greater net issuance of IDS and an increase in cross-border loans to non-banks during Q2 partly offset the sizeable drop in dollar-denominated local bank loans.3
In contrast to dollar credit, the growth in yen credit to non-banks in EMDEs continued to accelerate, exceeding 20% yoy (Graph 5.B, dashed yellow line). This pushed the outstanding stock to ¥16 trillion ($116 billion). The rapid growth in yen credit reflected mainly increased bank lending, which grew by 30% yoy. Since mid-2022, yen credit to non-bank borrowers in Asia-Pacific has expanded the most (¥1.9 trillion), followed by credit to those in Latin America (¥710 billion) and Africa and the Middle East (¥255 billion). Despite these developments, foreign currency credit in yen remains considerably smaller than the corresponding stocks of dollar and euro credit.
For its part, euro credit to non-banks in EMDEs fell by €21 billion in Q2 2023, leaving the outstanding stock at €890 billion. This contributed to a yoy contraction of 2%, the weakest rate of growth since end-2012 (Graph 6.A, black line). The decline reflected mainly a drop in bank loans, which shrank at a rate of 3% yoy (green line). The contraction in euro credit vis-à-vis non-bank borrowers in Asia-Pacific (–€13 billion) and emerging Europe (–€11 billion) accounted for the decline in the latest quarter (Graph 6.B).