Fitch Reports Credit Growth Flat in Developed World, Slowing in Emerging Markets

Global real lending growth was 3.6% in 2012, much the same as in 2011 and down from 4% in 2010 according to Fitch Ratings, which says this is well below a pace that would cause renewed concerns about over-lending.

The credit ratings agency (CRA) reports in its latest ‘Macro-Prudential Risk Monitor’ that real credit growth in the developed world was a meagre 0.5%. The pace of credit contraction has declined in a number of countries but there are few signs of any major pick up in credit growth. By contrast in emerging markets (EMs), even though generally slowing, credit growth was around 7.5% in both Latin America and Asia, 5.5% in Middle East/Africa, but only 1% in Emerging Europe.

The ratio of credit to gross domestic product (GDP) was stable in 2012 at 160% on average for developed markets and 53% in EMs. Despite substantial falls in some crisis countries, there is no sign of a generally falling trend in credit/GDP. However, in the developed world, credit/GDP is falling increasingly below trend and indeed is now below trend in the majority of countries.

The combination of stable credit/GDP and generally slowing real credit growth explains the continued progression of countries into lower risk categories. Australia, Denmark, Malta and the Netherlands and in EMs Brazil and Colombia all move into the Macro-Prudential Indicator (MPI) score 1 category in the latest report.

Rapid lending growth is confined to a handful of emerging markets. 13 countries – all EMs – experienced real credit growth of more than 15% in 2011/12 and therefore are in the MPI 2 category. Credit growth picked up significantly, to a double-digit pace, in Azerbaijan, Belarus, Bolivia, China, Guatemala, Saudi Arabia and Venezuela. But Africa has the most countries showing a significant pick-up in real credit growth – Ghana, Lesotho, Rwanda and Zambia. The increase is from a low base and reflects increased bank lending penetration alongside rapid economic development. There is little evidence of asset bubbles, though in some cases (Angola, Cameroon, Gabon and Rwanda) data limitations may obscure warning signals.

Increased MPI scores are confined to EMs: Ghana, Qatar, Russia, Venezuela and Zambia all rise to MPI 2 in this report. There are no new MPI 3s.

Sluggish or slowing credit growth brings lower MPI scores in Cyprus and Uganda (MPI 2) as well as Australia, Brazil, Colombia, Denmark, Malta and the Netherlands (MPI 1). The lower score for Cyprus is because it’s former MPI 3 score, which pre-dates the current banking crisis, was based on 2009 data which drops out of the assessment period (2010-2012) in this report.

Changes in bank viability ratings result in three Bank Stress Index (BSI) changes: Azerbaijan and Ireland improve to b; Cyprus weakens to c.

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