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IIF forecasts easing in bank lending conditions in emerging markets for Q2

…Q1 EM composite lending condition index up 1.3pts

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The Washington-based International Institute of Finance (IIF) expects further moderation in bank lending conditions in the emerging market space in the second quarter of the current year.

In a recent report published by the global finance body titled “EM Bank Lending Conditions Survey 2019Q1”, bank lending conditions improved marginally in the first three months of 2019, driven by improvement in the five constituents of the index namely credit standards, demand for loans, funding conditions, trade finance and non-performing loans.

The composite EM banking lending conditions index grew by 1.3 points to 49.4 points in the first quarter of 2019, from 48.1 points in the previous quarter. While lending conditions moderated in EM Europe and Asia, it remained stuck within tightening territory in Latin America and Middle East and North America (MENA).

According to the report, the global finance revised downwards its 2019 emerging market growth forecast to 4.4 percent from 4.5 percent, due to slower growth in EM Asia and Europe, while expecting a 4.7 percent rebound next year fuelled by improved business data and United States’ Federal Reserve dovish policy stance.

The index for credit standards sustained improvement owing to lessened stringency of terms on loan particularly in the MENA region. However a decline in other regions kept the overall metric within the tightening region of 47.6 points. Sub-Saharan Africa (SSA) is the only region experiencing easing credit standards.

Demand for loan index was in the easing territory in the review quarter owing to 5.2 points rebound in EM Asia’s index, which is above the benchmark. However, declines in SSA and Latin America caused the overall index to grow slowly. IIF expects improved demand for loans across all regions except in Asia.

The emerging market space witnessed better access to domestic funding in the first quarter buoyed by sharp increase in Asia, SSA and EM Europe. All regions except SSA expects better funding conditions.

International funding conditions eased for the very first time in the emerging market since 18 previous quarters. This was achieved given the tangible upticks in EM Asia, Europe and MENA, while SSA saw its index shed 1.9 points.

Funding conditions for international use is expected to moderate generally in the emerging market, although region-specific factors differ. MENA is envisioned to experience better international funding, the converse for EM Asia, while pessimism about access to foreign lending abounds in EM Europe.

The index for trade finance increased to easing territory in first quarter, indicating that banks were more willing to supply credit for trade transactions. The uptick was basically driven by better credit supply in Latin America and SSA.

Non-performing loans (NPLs) increased but at a slower pace in the first quarter buoyed by tangible NPLs reduction in MENA. The global finance body expects NPLs to grow at weak pace in the second quarter, driven by faster declines in EM Asia.

 

Israel Odubola

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