Some interesting trends are emerging in the land of external debt figures. The latest international banking statistics from the BIS released Wednesday showed banks’ external claims shrank by 5.1 per cent in the fourth quarter of 2008 to $31,000bn.
That was the largest reduction ever recorded by the BIS. Of that claims in US dollars and yen were down the most. As the BIS notes:
Claims denominated in US dollars and yen were down by 6% and 15%, respectively. Claims vis-à-vis non-banks declined 8%.
As you can see from the chart above, regionally, the biggest declines came in the euro area, while US claims remained pretty constant comparatively.
As the FT explains:
In the space of just three months from October to December banks globally cut their portfolios of foreign loans by $1,800bn or 5.4 per cent after adjusting for exchange rate movements.
As for the regional variance:
Almost all of the decline in foreign loans came from banks in western Europe, which had substantially expanded their cross-border lending in recent years. US and Japanese banks, which had not expanded their international lending as aggressively in the pre-crisis period, actually increased slightly their holdings of foreign assets in the quarter.
UK registered banks delivered the biggest overall decline in overseas lending, with foreign assets falling by £604bn in the quarter. Germany saw the next largest drop of £508bn, while Switzerland cut loans by £466bn, and Belgium reduced its banking assets by £452bn.
How would that decline in overseas lending have been enforced? Mainly via the pulling of credit and cutting back on derivative exposure, hence the even sharper drop on an immediate borrower basis, down $2,200bn to $20,500bn.
For more detail on specific countries’ positions it’s worth looking at the numbers compiled by the World Bank, which also include government positions and other entities, and can be found here:
Of particular interest is the US position. As explained above the bottom line figure (gross external debt) rose slightly in line with the BIS figures. Digging deeper into the figures, however, you can see that the sharpest external debt increases actually came within the government and banking sector — government external claims rising to $3,100bn from $2,964bn, and bank sector external debt claims increasing to $2,929bn from $2,519bn.
This especially contradicts the picture in the UK where both of these sectors were subject to the sharpest falls. UK government external debt claims falling to $350bn from $382bn and bank external debt claims falling to $5,993bn from $6,861bn. In Germany, while government external debt claims actually rose, bank external debt claims also fell sharply to $2,657bn from $2,928bn.
As for which areas in the US actually registered declines in external positions, within government these were long-term bonds, external claims of which fell to $2,342bn vs $2,462 the quarter before, and short-term securities held by “other sectors”, which according to the World Bank footnotes include non-bank financial corporations, non-financial corporations, and households and non-profit institutions serving households, external claims of which fell to $6,218bn from $6,772bn the previous quarter.
Before we rush to conclusions, however, it is worth considering the following observations made by Marc Ostwald at Monument Securities:
The numbers are quarterly, and to make a genuinely informed judgement, we would need to know how the trends have evolved over the past 10 years.
US external liabilities are very clearly deteriorating. BUT how much did USD devaluation play in that, has the relative appreciation improved that over the past 6 months?
As for Japan’s increase:
The data does not make it clear that the govt was diverting FX reserves to pay some external liabilities in 2008.
Related links:
Downgrading the USA – FT Alphaville
Sovereign stress (UK edition) – FT Alphaville
Banks cut back on overseas lending – FT