Global Banking Sector Outlook - Q214
We are forecasting accelerating loan growth in 2014 in 40 of 72 commercial banking sectors covered by BMI, led by developed countries including the US, UK, and various eurozone member states. Conversely, in many emerging markets, we project decelerating loan growth, including in China, India, and Brazil (emerging European banking sectors including Russia are notable exceptions). In line with this divergence, one of our global themes for 2014 is that emerging market countries face a credit hangover at some point in the immediate future. Developed markets have undergone a severe deleveraging since 2008, starting with the US and spreading to Europe. At the same time, emerging markets have ramped up credit growth, and the level of private credit as a percentage of GDP in several countries (Turkey, Brazil, and the Philippines, to name a few). While emerging market private sector credit-to-GDP is still low by developed world standards, at approximately 100.5% of GDP versus 199% for developed countries, its recent acceleration has been breathtaking, rising from just 65% of GDP in 2008.
Now, it looks as though there is likely to be a reversal of fortune, with the private sector in developed markets reasonably leveraged, if not under-leveraged in some cases, with emerging markets on aggregate set to see credit-to-GDP growth moderate. In Asia, while China's bubble is perhaps the most concerning, loans to the household sector have also surged in the ASEAN countries of Singapore, Malaysia, and Thailand. Even though interest burdens remain low in general thanks to low real interest rates, they are nonetheless creeping higher. The virtuous cycle - falling interest rates fuelling more borrowing, accelerating growth and improving the creditworthiness of households and governments - may well begin reversing in 2014. The increase in US interest rates will continue to force an across-the-board reassessment of the structural macroeconomic picture in many key markets, and test the vulnerabilities of several major banking sectors.
|Dangerously Above Trend|
|Emerging Markets Private Credit As % of GDP|