U.S. banks last year provided more than half of all new letters of credit commitments for the first time in a decade.
The banks gained 57% of the market last year, according to Standard & Poor's Corp. The increase is due to improving economic conditions, strong loan growth, and better relative credit quality.
U.S. banks reemerged as the leading letter of credit providers in 1991, when they captured 49% of the total dollar amount of new issues. In the accounting prior to that, Japanese banks had the largest market share, with 42% of new commitments.
The Japanese presence in this market has since dropped off dramatically. That country's banks supported less than 10% of newly rated letter of credit issues in 1994, S&P said.
According to the rating agency, the sharp drop in issuance by Japanese banks is attributable to asset quality deterioration, increased problem- loan writeoffs, and more stringent risk-based capital adequacy guidelines.
Picking up the slack from the Japanese banks, European financial institutions have begun to play a bigger role in the market. Between 1991 and 1994, European banks' share of new letter of credit commitments went to 35% from 29%, due in large part to the growth in Swiss bank credit support. In contrast with Japanese banks, S&P said, the Swiss have maintained high ratings, making their letters of credit attractive.