Global Credit Growth to Slow Further, According to Fitch

Global real lending growth slowed to 4% in 2011 and is forecast to fall further this year, according to Fitch Ratings in its latest ‘Macro-prudential Risk Monitor’.

“Fitch forecasts global bank credit to weaken to just 3% in real terms this year. Nonetheless, a handful of emerging markets have been experiencing a combination of rapid credit growth and asset price inflation that has been associated with bubbles in the past,” said Richard Fox, senior director in Fitch’s sovereign group.

The credit ratings agency (CRA) said that last year’s 4% real credit growth and this year’s forecast 3% are well below a pace that would cause renewed concerns about overlending. Rapid lending growth is confined to a handful of emerging markets, some of which move into Fitch’s higher macro-prudential risk category (MPI 3) in this report. Credit growth in developed markets remains stagnant and is forecast to slow in all emerging market regions this year, notwithstanding continued rapid nominal lending growth in some of the larger countries.

The recovery of credit growth seen in 2010 to 5% has not been sustained. Among emerging market regions, growth is forecast to remain fastest in Asia at 9%, but this is down from 11% in 2011. Credit growth is forecast to slow particularly sharply in Latin America, where growth is expected to halve to 5% this year. Fitch believes that only Brazil is likely to buck the trend amongst the major Latin American economies with forecast higher credit growth in 2012. Growth in the Middle East and Africa (MEA) is forecast to slow to a similar 5%, though some Gulf Co-operation Council (GCC) countries may see a pick up. Emerging Europe continues to experience the slowest emerging market credit growth with barely 3% real growth expected this year.

Fitch has extended its country coverage in this report to all rated sovereigns, including an additional 20 emerging markets for the first time. Two-thirds of the new countries are in Africa.

Three newly added African countries – Lesotho, Mozambique and Uganda – attract the highest risk score of MPI 3 due to the combination of rapid credit growth, rises in real estate or equity prices or the real exchange rate. Peru also becomes MPI 3. In all these countries except Lesotho, lending growth has dropped sharply from its peak, however.

Colombia and Lebanon drop out of the MPI 3 category due to data revisions. Countries that remain MPI 3 based on past triggers are Argentina, China, Cyprus, Hong Kong, Indonesia, Sri Lanka and Turkey.

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