Statistical release: BIS international banking statistics and global liquidity indicators at end-September 2022

Cross-border credit sustained by interbank lending in euros

The BIS locational banking statistics (LBS) show that banks' cross-border claims² expanded by $1.1 trillion during the third quarter of 2022 (+10% year-on-year (yoy)) on an FX- and break-adjusted basis (Graphs 1.A and 1.E).³ Graph 1 summarises the changes (top row) and the annual growth rates (bottom row) across instruments, currencies and counterparties. The expansion in Q3 2022 reflected a third consecutive quarterly jump in the market value of derivatives and other instruments (+$933 billion, Graph 1.A, yellow bars), booked mostly by banks in Europe. By contrast, the increase in cross-border credit – ie loans and holdings of debt securities – was far more modest, at $169 billion (+5% yoy). Banks' holdings of debt securities fell for the second quarter in a row (–$28 billion), while loans increased (+$197 billion).

Within global cross-border credit, the pace of bank lending in euros and in dollars diverged further. Dollar credit slowed to 1% yoy while euro credit grew at 9% yoy (Graphs 1.B and 1.F). The Q3 2022 increase was almost entirely due to more credit denominated in euros (+$165 billion); the slower growth in dollar-denominated credit

possibly reflected the higher cost of funding in US dollars.⁴ The divergence in dollar and euro credit was particularly stark for EMDEs: the former shrank for the first time since early 2021 (–1% yoy), while growth in the latter accelerated to 13% yoy (Graph 1.H).

Global cross-border credit to most sectors continued to expand, with brisk growth in the interbank segment (Graphs 1.C and 1.G). Credit to unrelated banks and related offices rose by $107 billion and $104 billion, respectively. By contrast, credit to non-banks fell by $72 billion (or 1% yoy), driven by banks in France, the United States and Japan. Credit to most AEs rose; the United Kingdom was the main exception with a $111 billion drop, against the backdrop of tensions in the UK gilt market (Graph 1.D).

Market value of derivatives surged, led by claims on the UK

The market value of banks' derivatives positions continued to swell in Q3 2022 against a backdrop of elevated market volatility and changing expectations about inflation. This pushed the yoy growth rate of cross-border derivatives claims beyond 35%, extending a trend that started in early 2022 (Graph 1.E).⁵ The BIS consolidated banking statistics (CBS), which track the consolidated positions of banks headquartered in a particular country, show the size of banks' derivatives books with unaffiliated counterparties (Graph 2). Derivatives with a positive market value reached $4.7 trillion by end-Q3 2022 (Graph 2.A). Those with a negative market value moved in tandem, leaving net market values close to zero over time (black dots).

The rise in derivatives positions was evident in most jurisdictions that are home to banks acting as market-makers. Among them, UK banks recorded the largest increase in their derivatives with a positive market value, followed by German and US banks (Graph 2.B). Since end-2021, $700 billion (or 40%) of the increase in derivatives claims was recorded vis-à-vis counterparties in the United Kingdom (Graph 2.C).⁶

Credit to EMDEs slowed as dollar lending shrank

Banks' cross-border credit to EMDEs declined by $32 billion in Q3 2022 on account of weaker lending in US dollars (Graph 3.A). Against a backdrop of higher funding costs and persistent dollar strength, dollar credit to EMDEs fell by $78 billion. Meanwhile, credit in other currencies held up, expanding by $47 billion over the quarter. The drop in credit to EMDEs led to a slowdown in the annual growth rate of credit overall (+2% yoy), while that for dollar credit fell into negative territory (–1%) for the first time since early 2021 (Graphs 1.H and 3.A).

While bank credit fell across many EMDEs during Q3 2022, the drops vis-à-vis China (–$24 billion) and Hong Kong SAR (–$18 billion) stood out (Graphs 3.B and 3.C).⁷ Both economies struggled amid Covid-19-related shutdowns and other restrictive measures affecting business activity. By contrast, Singapore continued to attract credit (+$16 billion). Overall, credit to emerging Asia contracted by $17 billion. Elsewhere, credit to emerging Europe and Africa and the Middle East dropped by $19 billion and $8 billion, respectively.

The slowdown in dollar lending to EMDEs went beyond those regions that traditionally borrow predominantly in that currency. Dollar credit to emerging Asia-Pacific and Africa and the Middle East dropped by $59 billion and $17 billion, respectively (Graph 3.D). Dollar claims on emerging Europe, where the euro plays a larger role, also declined by $15 billion. The exception was Latin America, a major dollar borrower and yet the only emerging region where dollar credit grew in Q3 (Graph 3.D). Credit to the region rose by $13 billion overall, as lending to Brazil (+$22 billion) outweighed a $10 billion decline vis-à-vis Argentina, the Bahamas and Chile (Graphs 3.B and 3.C).

Banks' exposures to Russia continued to fall

Banks continued to reduce their cross-border claims on Russia in Q3 2022, even as their liabilities to the country remained elevated (Graph 4).⁸ Cross-border claims to Russia dropped by $7 billion, the third consecutive quarterly decline (Graph 4.A).

Liabilities to non-bank financial intermediaries (NBFIs) and non-financials in Russia fell by $11 billion and $7 billion, respectively. At the same time, cross-border liabilities to the Central Bank of the Russian Federation grew by $12 billion in Q3 2022, as blocked coupon payments and redemptions continued to accumulate at Euroclear.⁹

The CBS provide a more comprehensive view of how banks' consolidated exposures to Russia receded in the course of 2022 (Graph 4.B). Since Q4 2021, foreign claims reported on Russia dropped by 28% to $87 billion at end Q3 2022. Other potential exposures fell by even more (–63%) to reach $18 billion over the same period (Graph 4.C). French
(– $19 billion), US (–$6 billion) and Italian banks (–$6 billion) cut foreign claims the most since end-2021.

Global liquidity indicators at end-September 2022

The BIS global liquidity indicators (GLIs) track credit to non-bank borrowers, covering both loans extended by banks and funding from global bond markets through the issuance of international debt securities (IDS). The main focus is on foreign currency credit denominated in three major reserve currencies (US dollars, euros and Japanese yen) to non-residents, ie borrowers outside the respective currency areas. The GLIs monitor growth in this credit relative to that denominated in those same currencies to residents within these currency areas (as reported in national financial accounts).¹⁰

In Q3 2022, global foreign currency credit denominated in US dollars contracted further while that in euros and yen expanded. As a result, annual growth rates diverged (Graph 5.A). Dollar credit to non-banks outside the United States stood at $13.1 trillion at quarter-end, 2% lower than a year earlier (Annex Graph C.1). Growth in euro credit to non-banks outside the euro area remained robust at 9% yoy, pushing the amount outstanding to €4 trillion ($3.8 trillion). Similarly, yen credit to non-banks outside Japan grew at 10% yoy, reflecting brisk growth in bank lending (19% yoy) (Graph 5.B). This pushed the stock of yen credit to ¥50.7 trillion ($0.35 trillion). In all three currencies, the issuance of IDS slowed (Graph 5.C).

Borrowers in EMDEs also saw dollar and euro credit diverge. Credit to non-banks in EMDEs fell in dollars but expanded in euros, leaving the respective stocks at $5.3 trillion and €0.9 trillion (Graph 6.A). In one of the largest contractions on record, dollar credit to EMDEs fell by $135 billion during Q3 2022 (Graph 6.B), mainly vis-à-vis borrowers in Asia-Pacific (–$110 billion) in particular those in China (–$41 billion) and Hong Kong SAR (–$49 billion). Dollar credit to emerging Europe (–$18 billion), Africa and the Middle East (–$7 billion) and Latin America (–$1 billion) also contracted.

In contrast to dollar credit, growth in euro credit to non-banks in EMDEs remained resilient (Graph 6.C). Loans grew by €13 billion in Q3, while net issuance (gross issuance less redemptions) of IDS added €4 billion. Most of the new credit went to borrowers in Asia-Pacific (+€11 billion), followed by those in Africa and the Middle East (+€4 billion), Latin America (+€2 billion) and emerging Europe (+€1 billion).

The tightening in dollar credit to EMDEs was driven by a contraction in bank loans that left the stock of loans 3% lower than the year before (Graph 7.A, dashed line). The third quarter also saw the first decline in the stock of dollar-denominated IDS since the Great Financial Crisis: EMDEs' net issuance of dollar bonds dropped by $11 billion, reducing the growth rate to 1.5% yoy (dotted line).

The expanding stock of euro credit to EMDEs reflected the rapid pace of bank lending, which grew at a rate of 12% yoy (Graph 7.B, dashed line). Meanwhile, net issuance of IDS slowed to 2% yoy (dotted line). Yen credit also expanded in Q3 thanks to bank lending (Graph 7.C, solid line). Yen-denominated bank loans to EMDEs reached ¥10.2 trillion ($71 billion), 8% higher than a year before (dashed line). Net issuance of yen-denominated IDS, however, continued to decline at 9% yoy (dotted line). The bulk of this decline was due to reduced issuance by the non-financial sector (–6% yoy).

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¹   Since December 2022, the country groupings advanced economies (AEs) and emerging market and developing economies (EMDEs) used in statistical commentaries have been aligned with the country classification in the    BIS Annual Economic Report, as detailed    here.

²   In the BIS locational banking statistics, claims comprise: (i) loans and deposits; (ii) holdings of debt securities; and (iii) derivatives with a positive market value and other residual instruments (combined).

³   The US dollar appreciated against many currencies during the quarter. This reduces the non-dollar amounts outstanding when expressed in US dollars. Quarterly changes are reported on an adjusted basis, after removing exchange rate valuation effects and statistical breaks.

⁴   The Federal Reserve had already raised dollar interest rates to 3%, while the ECB had just started its euro rate tightening cycle.

⁵   Derivatives positions on a locational basis include intragroup positions when risks associated with derivatives portfolios are transferred across trading desks within the same banking group.

⁶   This growth in derivatives positions is consistent with London's outsize role in the clearing of derivatives and partly reflects changes in the market value of interest rate derivatives cleared at LCH Ltd in the United Kingdom.

⁷   Banks' consolidated claims on China, as tracked in the CBS on a guarantor basis, also fell, with foreign claims on the non-bank private sector dropping by $45 billion and interbank claims falling for the sixth consecutive quarter to reach $195 billion, the lowest level in a decade.

⁸   The positions vis-à-vis Russia are reported by other BIS reporting countries. The BIS ceased receiving data submissions from the authorities in Russia. Local positions booked by banks in Russia, and their positions vis-à-vis counterparties abroad, have not been reported since end-2021.

⁹   www.euroclear.com/newsandinsights/en/press/2022/2022-mr-17-euroclear-continues-to-outperform.html.

¹⁰   For more details, see the GLI methodology: www.bis.org/statistics/gli/gli_methodology.pdf.