Dollar lending outside U.S. falls for first time since 2009: BIS

Global lending remained weak in 2016’s first quarter, with dollar-denominated bank loans to non-U.S. borrowers worldwide falling for the first time since the 2007-09 financial crisis, the Bank for International Settlements said on Sunday.

Dollar loans to emerging markets and lending in euros to borrowers outside the euro zone also fell, signs that the stronger dollar, emerging market weakness and financial market uncertainty took a toll on the demand for credit.

The stock of dollar loans to non-U.S. borrowers around the world fell 0.7 percent from the same period a year ago, although a 4 percent increase in credit via bond markets lifted overall dollar-based credit to $7.9 trillion at the end of March.

The stock of dollar-denominated credit to emerging markets -- a key measure of global liquidity conditions -- fell to $3.2 trillion at the end of March, down $137 billion from a year earlier, the BIS said.

That may have reversed in recent months, however, thanks to the increase in emerging market bond issuance and rebound in capital inflows during the three months to June, the BIS said.

Euro loans to non-euro zone borrowers fell for the first time since 2014, in part reflecting renewed weakness in the region’s banking sector as some institutions curtailed their international lending activities, the BIS said.

But with bond yields at historically low levels, bond issuance rose, lifting total euro credit to non-euro residents by 4.2 percent to $2.3 trillion, the Switzerland-based BIS said.

The shift towards using the euro as a financing currency continued as the divergence in monetary policy between the euro zone and United States widened the gap between euro and U.S. yields.

This means U.S. companies can obtain dollar funding by issuing debt in euros and then swapping it back into dollars, although this increases strains in the cross-currency basis swap market, the BIS said.

Overall global debt issuance rebounded in the first half of 2016 across developed and emerging markets, in particular in the second quarter. By the end of Q2 the level of debt securities was 2.1 percent higher than a year earlier, the BIS said.

While global credit was broadly weak, some countries showed “unusually high” credit growth relative to the size of their economies, flashing warning signs of potential financial overheating and distress in the months and years ahead.

Canada included, China and several other Asian countries, while potential doubts over countries’ ability to service their debts appeared to be most acute in Brazil, Canada, China and Turkey.

Property price growth was mostly close to historical trend, but was “unusually high” in Germany, Japan and Portugal, the BIS said.