Bank Crisis Threatens Emerging Markets in China and Brazil

Published Date : Sep 15, 2015

The Bank for International Settlements has warned that credit growth in nations such as Brazil, Turkey, and China will increase bad debt as well as create a banking crisis in the near future. The BIS has stated in a report that a ratio of credit to gross domestic product stands at 25.4% in China. The ratio reveals how much private-sector credit has deviated from its long-term end. In Turkey, the ratio stands at 16.6% while for Brazil, it is 15.7%. It has been observed that a country with the ratio above 10% has higher chances of banking crisis within three years. Though the largest developing nations successfully overcame the global financial crisis in 2008, bad loans have mounted up over the period of time as growth subsides. 

Chinas devaluation of yuan and the slowing down of countrys economy have deeply affected the global markets. In China, president Wen Jiabao had triggered a lending boom in 2009.  Loans disbursed worth 17.6 trillion yuan have become non-performing and rose to 982.5 billion yuan in the first quarter. Indonesia, Thailand, and Singapore also have credit-to-GDP ratios crossing over 10% and are vulnerable to banking crisis. The BIS has further stated in the report that the amount of international debt securities issued by non-financial companies in emerging markets reached US$75 billion in the first half of this year compared to US$161 billion for the whole of 2014 and US$189 billion in 2013. 

The biggest banks in Brazil are witnessing worst contraction in a quarter century. The countrys credit grade was lowered by Standard and Poor last week. The credit rating agency has also lowered the scale ratings of Banco do Brasil SA, and Banco Bradesco SA which are among the biggest banks in the country.