This year, much attention has rightly been given to political, economic or trade tensions around the globe. In particular, challenges in Argentina, Brazil, China, Mexico, Turkey, and the U.K have dominated the news. The June 2018 Country Exposure Lending Survey released by the Federal Financial Institutions Examination Council (FFIEC) demonstrates that despite the aforementioned challenges, U.S. banks are not reducing their credit and market risk exposures to those countries significantly. The lending survey is a quarterly statistically release known as E16 (009). It is closely watched by analysts and investors wanting to understand changes in U.S. bank exposures to different countries including to our own.
Total U.S. bank exposures in June 2018 in comparison to June 2017 barely changed, rising only 1.3%. U.S. banks have exposures to financial institutions, corporations, and individuals of almost $17 trillion, of which 76% are to U.S. counterparties.
U.S. banks' total exposures rose only slightly. SOURCE: FFIEC E16 DATA.
U.S. banks have $4 trillion dollars in exposures to foreign counterparties, 24% of their total exposures. The largest percent by far of those exposures are to developed markets.
Developed markets are the largest foreign exposures for U.S. banks. SOURCE: FFIEC E16(009) DATA.
In 2018, U.S. banks’ foreign exposures rose to every region except to Eastern Europe and Latin America. Exposures to Eastern Europe decreased by 12%; this decrease was primarily led by decreases in exposure to the Czech Republic (-52%) and Hungary (-24%). Despite Turkey’s corporate debt and currency challenges, U.S. banks have only decreased their exposure by 8%, yet Turkey represents less than half a percent of U.S. banks’ total foreign exposure.
It is interesting to note that despite political and economic uncertainty in Argentina, Brazil, and Mexico, U.S. banks reduced exposures from June 2017 to June 2018 to Latin America only by a little under 3%. Banks reduced exposures to Brazil (-3%) and Mexico (-6%). However, U.S. banks increased their exposures to Argentina by almost 43%; Argentina is only less than half a percent of U.S. banks foreign exposures.
In the last year, the most significant rise in foreign exposures by American banks is to Africa. Exposures rose by 25% primarily because exposures to South Africa rose almost 26%. It is too early to tell if this will be a trend amongst American banks. All of Africa only represents a quarter of a percent of U.S. banks’ total foreign exposures.
U.S. exposures to banking centers such as the Bahamas, Cayman Islands, Hong Kong, Panama, and Singapore rose by 14%. The rise was primarily led by a rise in exposures to Hong Kong (25%) and Cayman Islands (14%).
U.S. bank exposures to G-10 and non-G10 developed countries rose by 4%. These two regions represent 62% of all U.S. foreign exposures and 14% of total exposures. In this group, the U.K. is by far the largest foreign exposure for U.S. banks. Despite ongoing, uncertain Brexit negotiations, American bank exposures to British banks, corporates, and individuals have barely changed from June 2017 to June 2018. The U.K. remains U.S. banks’ largest foreign exposure at $555 bn, or 14% of all foreign exposures. In fact, since the June 2016 referendum resulted in a majority vote to exit the European Union, U. S. exposures to the U.K. have only decreased by 2%. Exposures rose to Germany (9%) and Ireland (5%). Also, of note is that despite Italy’s economic woes, U.S. banks have increased their exposures to Italy by 17%; fortunately, those exposures are less than 2% of U.S. banks total foreign exposures.
U.S. banks' top ten foreign country exposures. SOURCE: FFIEC E16(009) DATA.
Exposures to Asia rose slightly from June 2017 by 1.3%. Exposures to China grew by 1.2%; China is now American banks’ largest emerging market exposure, ahead of Brazil and Mexico, which until a few years usually alternated in being American banks’ largest emerging market exposure. U.S. banks’ Chinese exposure presently stands at $102.5 billion dollars, a significant 230% increase in one decade.
Re-disseminated by The Asian Banker from Forbes.com