Mixed Global Picture for Credit Growth

Global real lending growth picked up slightly to 4.8% in 2014, helped by the first increase in the developed world since 2010, according to the latest
Macro-Prudential Risk Monitor
issued by Fitch Ratings. However, overall growth is still weak – stuck in a 4% to 5% range.

The credit ratings agency (CRA) comments that on the basis of recent and prospective credit growth, macro-prudential risk indicators (MPI) continue to trend lower with the highest risks largely confined to emerging markets (EMs).

The slight increase in global real credit growth in 2014, for the second year running, remains well below the double-digit rates seen in the run-up to the 2008 global financial crisis (GFC), yet has not stopped private credit to gross domestic product (GDP) staying above its pre-crisis level. Significant de-leveraging by this measure has been largely confined to Europe.

Credit growth in the developed world in 2014, although positive after three years’ contraction, was a meagre 1.5%. Credit growth also strengthened slightly in emerging Europe (EE), to 3.7%. The most marked acceleration was in the Middle East and Africa (MEA), to 9.8%, which became the fastest growing region last year. Credit growth remained robust in Latin America at 7.0%, but continued to slow, while growth slowed sharply in emerging Asia to just 5.0%, the slowest since the GFC.

Fitch forecasts a slight easing in overall real credit growth in 2015 to 4%, broadly in line with the average since 2011. Growth should continue to strengthen in developed countries and EE and pick up in Asia. This will be outweighed by further slowdowns in Latin America and also MEA, although this will remain the fastest growing region.

The number of countries in which real private credit growth exceeded 15% in two successive years in 2012-2014 (the trigger for the higher macro-prudential risk indicator (MPI) 2 or above for EMs) has declined to one-fifth of the countries in this report – all of them EMs. Slower credit growth and the passage of time mean that Argentina, Indonesia, Lesotho, Peru and Turkey are no longer MPI 3-the highest macro-prudential risk score. Ghana is the only new MPI 3.

Three-quarters of all countries are now MPI 1, due to slowing EM credit growth and stable credit to GDP in developed countries (DC), which has brought this ratio below trend in 80% of DCs. Hong Kong remains the only DC MPI 3. However, although DC credit to GDP has stabilised around 150%, it is little different from the eve of the GFC. There is no sign of any trend fall; rather a small increase is forecast this year. EM credit to GDP continues its trend increase.

Deleveraging of varying degrees continues in most European countries, with credit to GDP rising in only a few, such as Scandinavia and Switzerland). Credit to GDP is rising fastest in developed Asia, but also in North America.

The level of credit to GDP varies widely around the median, from over 200% in Cyprus and Hong Kong, to less than 100%, and declining, in Germany.

Bank viability rating changes since Fitch’s previous report have led four banking system indicators (BSI) to improve: Portugal to ‘bb’, Oman to ‘bbb’ and Belgium and Czech Republic to ‘a’; and two to weaken: Argentina and Venezuela, both to ‘ccc’.

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