Over the last year the crisis in the inter-bank market and the soaring prices of oil and other raw materials tended to obscure several other important trends. In most of the developing world (i.e. the vast majority of the countries whose banking industries are surveyed by BMI), lending has been growing quickly. In many emerging markets inflationary pressures have been boosted by a rapid increase in credit, and in a number of emerging markets macro-economic imbalances are evident. The figures on the tables above provide a snapshot of the banking sector in Greece and the changes that have taken place within it over the last year. To place the figures in context, it may be useful to bear in mind certain aspects of the 59 countries whose banking sectors are currently surveyed by BMI. Across this sample the median growth in assets in local currency terms was 21.3% (in Colombia), the median loan growth was 21.6% (in India), and the median growth in deposits was 17.9% (in Brazil).
On their own, the ratios of loans to deposits, assets, and GDP mean little; however, they can provide useful hints when combined with other data. Across the 59 countries the median loan/deposit ratio was 92.3% (in Greece), the median loan/asset ratio was 56.0% (in Poland), and the median loan/GDP ratio was 63.9% (in India).
9 From 3Q08, we have included a new section that examines the risks associated with each country’s banking sector in a new way. We have essentially sought to ask to what extent the banking sector will likely need source funding from banks in the rest of the world over the course of 2008. Given that the answer is not necessarily meaningful on its own, we have looked at other key issues such as the size and recent movement in the loan/deposit ratio, macro-economic developments, and recent movements in financial markets.
In general, the first half of 2008 has been kind to fixed-income investors and money market participants in Central and Eastern Europe. Inter-bank lending rates have come down thanks to the actions of the European Central Bank and the Federal Reserve, among others. Benchmark bond yields have generally fallen in absolute terms and, in some cases, relative to yields in developed countries. This is in spite of the fact that in many of the countries in the region, the statistics from the banking sector are worrying given the economic imbalances that persist.
Booming oil prices - and, in Iran at least, highly inflationary monetary policies - have led to a surge in bank lending in much of the Middle East and North Africa. It is not clear that all of this lending has been prudent. Nevertheless, the massive current account surpluses being achieved by many of the countries in the region indicate that - quite unlike South East and East Asia in 1997-8, for instance - the currencies are undervalued. There is no reason why the boom should stop anytime soon. The Middle East and North Africa should, collectively, continue to be a significant supplier of capital to the rest of the world. However, in part because of the relative underdevelopment of financial services and banking in most countries, relatively little of this money should come directly through the local banks.
Two general themes pervade the banking sectors of the Asia-Pacific region. The first is that the excess savings within Greater China and Japan remain enormous and are likely to grow. One expression of this will be the continuing growth in bank deposits that is, in absolute terms, considerably greater than the growth in lending. The second is that in much of the region central banks have been moving to tighten monetary policy. This has already had an impact on the behaviour of the banks.
Over the last year Latin America has been a major beneficiary of the pick up in investors’ appetites for risk. Yields on bonds have been falling and the compression of yield spreads has been larger than in other parts of the world. In every one of the Latin American countries monitored by BMI, the loan/deposit ratios have been rising. Current account and budgets are balanced, for the most part. Collectively, the banks are sourcing funds from the rest of the world in order to lend to non-bank customers.
As in previous reports, we include a SWOT analysis for Poland. We suggest that the two most important strengths of the Polish remain the facts that it has been reshaped by past crises and that, in the context of Central and Eastern Europe, it is the third largest banking sector (after Russia and Greece). The chief weakness seems to be that the banking sector remains underdeveloped in many ways.
Since Q108 we have calculated on a consistent basis a Commercial Bank Business Environment Rating (CBBER) for each of the 59 countries surveyed. The CBBER includes an assessment of the limits of potential returns: it does this by taking into account the size, growth potential, and bancassurance potential of the banking sector, as well as aspects of the economy in 2007. The CBBER also depends on an assessment of the risks to the realisation of potential returns. This reflects BMI’s assessments of overall country risk, together with the regulatory and competitive environment.
Poland’s CBBER is 63.5. In the context of Central and Eastern Europe (CEE) region, this means that it is a moderately attractive country; the CBBERs are higher in Greece, Hungry and Russia.
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