Washington, D.C., May 1, 2015 - Bank lending conditions in emerging economies tightened abruptly to their weakest level in three years in 2015Q1, according to the latest Emerging Markets Bank Lending Conditions Survey from the Institute of International Finance.
"The sharp tightening of EM bank lending conditions is further evidence that emerging market economies are struggling," said Charles Collyns, chief economist at the IIF. "In addition to a demand slowdown, supply conditions continued to deteriorate. Banks reported a continued tightening in funding conditions, likely reflecting the cautious tone in EM financial markets, at least until the March FOMC meeting".
The composite index of the IIF's Bank Lending Survey dropped 1.7pts to 48.1 in 2015Q1, the lowest since 2011Q4. An index reading below 50 reflects a tightening in bank lending conditions. This tightening in lending conditions was driven by a sharp decline in loan demand, whose index fell to the lowest level in the series starting 2009Q4, and is in line with our estimate of very weak EM growth in 2015 Q1.
The index for domestic funding conditions edged up 1.5 pts to reach 50.7 in 2015Q1. This was primarily driven by a substantial improvement in funding conditions in EM Asia, even as funding conditions in other regions tightened.
By region, EM Asia and Latin America drove the overall tightening in bank lending conditions. Lending conditions in EM Europe also entered tightening territory after easing in 2014. The improvement in bank lending conditions in the MENA region continued to moderate, probably reflecting the impact of weaker commodity prices since 2014H2.
The survey covered 130 EM banks and was conducted between Mar 12 and Apr 23, 2015.
For more information on the Survey, visit http://www.iif.com/emr/global/emls/.
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The Institute of International Finance is the global association of the financial industry, with close to 500 members from 70 countries. Its mission is to support the financial industry in the prudent management of risks; to develop sound industry practices; and to advocate for regulatory, financial and economic policies that are in the broad interests of its members and foster global financial stability and sustainable economic growth. Within its membership IIF counts commercial and investment banks, asset managers, insurance companies, sovereign wealth funds, hedge funds, central banks and development banks. For more information visit www.iif.com.