U.S. Banks Gaining Ground In Loans to Developing World

Indicating a return to prominence on the world financial stage, U.S. banks are growing faster than their European and Japanese counterparts in lending to developing countries.

U.S. bank loans to borrowers outside the major industrialized countries rose by 10.4%, to $114.9 billion, during the first six months of last year, according to data just released by the Bank for International Settlements in Basel, Switzerland.

The growth accelerated from 7% in the previous half year.

While U.S. banks' loan total still trails the European and Japanese aggregates, it grew in the first half of 1996 much faster than European banks' 6% (to $167.5 billion) and the Japanese banks' 0.7% (to $495.3 billion).

And these numbers tend to understate the active role U.S. banks are playing in originating international loans that end up on others' books.

Bankers and analysts said the growth reflects both greater demand for credit and the higher yields available in developing countries. In Latin America, for example, BankAmerica Corp., Chase Manhattan Corp., Citicorp, and J.P. Morgan & Co. are four of the five biggest syndicators, according to Loan Pricing Corp.

"The BIS only reports loans that are booked by banks, not how they are originated," said the head of international syndications for a major U.S. bank. "By far the majority of loans are originated by a handful of banks, and U.S. banks are among the leaders."

"The eagerness of banks to lend to emerging markets is continuing because interest rates are higher than in many of their home markets," said Raphael Soifer, a banking analyst with Brown Brothers Harriman & Co.

"A lot of lending depends not only on demand for credit but on market confidence in countries where demand is coming from," added a senior U.S. banker. "We are obviously not holding the full amount we underwrite, and our ability to underwrite depends on our ability to sell down positions."

The settlement bank's data showed U.S. bank lending to Asian countries outside Japan rose 20% to $30.7 billion, and lending to Eastern Europe climbed 27%, to $4.7 billion. But lending to Latin America grew only 2.5%, to $59.3 billion.

U.S. banks also held $28.5 billion in outstanding loans to offshore banking centers such as Bermuda, the Cayman Islands, and Hong Kong; $13.8 billion to smaller developed economies such as those of Australia, Iceland, and New Zealand; $4 billion to the Middle East; and $2 billion to African borrowers.

Analysts pointed out that U.S. lending to developing countries is concentrated among relatively few banks with multinational traditions, like BankAmerica, Chase, and Citicorp.

"Money-centers continue to dominate such lending," said Mr. Soifer. According to data compiled by Brown Brothers, money-center banks account for more than two-thirds of cross-border lending by U.S. banks to developing countries.

Bankers said the settlement bank's figures seem to correlate with their own institutions' lending patterns. They noted that the rapid increase in lending by U.S. and European banks to Asian borrowers has offset the sharp reduction in new lending by the troubled Japanese banking industry.

More than two-thirds of Japanese banks' lending to developing regions was to Asian borrowers, but such lending grew only slightly in the first half of last year, to $116 billion.

Bankers also noted that one of the main reasons bank lending grew more quickly in Asia than in Latin America was that Asian borrowers tend to have large credit needs but are less well-known and therefore turn to banks rather than to capital markets for their financing.

"Economic growth in Asia has created a very strong market for commercial loans along with an increasing demand for consumer credit," said Jack Meyers, vice chairman and chief credit officer at BankAmerica.

"The best place for new borrowers is the bank market," said a senior banker at another bank.

Conversely, bankers said, Latin American borrowers are better known and therefore rely more on the capital markets than on bank loans. Much of the borrowing from Latin America is also for refinancing, they added.

The settlement bank's data cover lending by banks in the Group of 10 industrialized countries plus Austria, Denmark, Finland, Ireland, Luxembourg, Norway, and Spain, to borrowers in other countries. The Basel organization, whose members include the central banks of 41 mostly western countries, serves as an international clearing bank for central banks and a forum for harmonization of regulations.

Among other findings in the survey:

*U.S. banks' biggest cross-border exposure was to Mexico, where outstanding loans totalled $16.8 billion. Brazil came next at about $16 billion, followed by Argentina with $11.8 billion.

*European banks accounted for 53.8% of the $921 billion in loans by BIS member banks, up slightly from 53.4% at yearend 1995. German, French, Dutch, and British banks were among the most active, while Spanish banks made major advances in Latin America.

*Improved economies and fiscal management in developing countries, slowing demand for funds from corporations in the industrialized world, and higher interest rates paid by borrowers in developing countries all contributed to the increase in bank lending.

*Banks are increasingly willing to lend to lower-rated or nonrated borrowers on favorable terms.

*Nearly three-fourths of the $46.6 billion in new lending among banks in the survey was to Asian countries. Outstanding loans to Latin America rose only 4%, to $221 billion; lending to Middle Eastern and African countries fell slightly, while lending to Eastern Europe remained roughly the same.

*Much of the lending remained short term. Some 55% of all credit extended was for one year or less.

*Private-sector borrowing increased sharply in developing countries. Slightly over 40% of total lending was to other banks, 42% to nonbank private-sector borrowers, and 17% to public-sector borrowers.

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