Asian Banks Store More Money Overseas, Showing Rising Local Economic Concerns
March 5, 2001
Business and Finance - Asia
Asian Banks Store More Money Overseas, Showing Rising Local Economic Concerns
By JAMES T. AREDDY
Dow Jones Newswires
HONG KONG -- Asian banks signaled concern over their domestic economies in the first nine months of 2000 by choosing to deposit more of their money overseas rather than lend it.
The trend is highlighted in a report published Sunday by the Bank for International Settlements, a Basel-based organization that monitors loans and fund flows on behalf of the world's central banks.
The figures show commercial banks in the world's most developed markets received a significant inflow of deposits from Asian banks (outside Japan) as the region's banks paid down more of their external obligations.
Chinese and Taiwanese banks were the biggest overseas depositors. China's deposits at banks in the BIS reporting area jumped 41% in the nine months ended September, to US$94.1 billion from $66.6 billion at the end of 1999. In contrast, China's deposits overseas slipped 5.7% for the period between 1998 and 1999.
Overseas deposits by Taiwanese banks, meanwhile, rose 15% to a record $51.9 billion in the nine-month period, in line with the 17% rise in deposits owned offshore by banks in the whole Asian-Pacific region. Taiwanese deposits overseas jumped 20% between 1998 and 1999.
These rises might not be surprising, given that China and Taiwan control two of the biggest foreign-exchange reserves, and their holdings rose last year along with export growth.
Nevertheless, the numbers show the banks aren't recycling their deposits back into the domestic economies as fast as they can. The rise in overseas deposits by Asian banks grew even faster than the roughly 15% rise in overseas deposits by oil-rich Middle Eastern banks in the first nine months of last year.
Rather than invest with new domestic loans, the Asian banks apparently see better returns from deposits elsewhere. The trend has been reflected in dismal bank lending figures from around the region, which have shown only Hong Kong and Singapore banks increasing loan levels, and then only mildly.
Interest-rate differentials explain part of the reason Asian banks have been such eager depositors overseas, BIS said. "At the same time, foreign-currency lending to residents by local banks with surplus foreign exchange has been weak," the BIS report said. "This surplus appears to have been placed with commercial banks abroad."
BIS also found that Asian banks continued to pay back money owed in the first nine months, even though new loans were possible with current account surpluses. "Governments had little interest in [taking on new] international financing in spite of relatively attractive spreads," the BIS report said.
Money center banks increased exposure to emerging-market countries like Turkey, Argentina and Brazil during the period and into late last year. "But these increases were largely offset by further repayments from developing countries in Asia," the BIS report said.
Despite the steady repayment following the 1997 debt crisis, claims by international banks on institutions in Asia remained high. Money center banks had claims of $41.7 billion on Indonesian borrowers at the end of September, a fall of 11% from the end of 1999 and 21% fall from the end of 1998.
Exposure to South Korean banks, meanwhile, increased 4.2% in the nine months to September, to $73.3 billion, down marginally from the end of 1998. Short-term debt remained a worry there, a point highlighted in past BIS reports. South Korea owed $58.7 billion at the end of September, according to BIS figures that account for double counting of claims. But the distressing part is that 58% of that was due within a year.
One-third of China's debt was short term, whereas one-half of Indonesia's debt was short term. In Taiwan, 73% of the $19.9 billion in claims was due within a year of Sept. 30, 2000.
Write to James Areddy at james.areddy@dowjones.com1
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