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

Global cross-border credit dropped in late 2022

The BIS locational banking statistics (LBS) show that banks' cross-border claims fell by $1.4 trillion during the fourth quarter of 2022 (Graph 1.A). This decline slowed yoy growth to 6% on an FX- and break-adjusted basis (Graph 1.E).¹ Graph 1 summarises the changes (top row) and the annual growth rates (bottom row) across instruments, currencies and counterparties. The contraction in Q4 2022 reflected both a drop in the gross positive market value of derivatives and other instruments (–$718 billion, Graph 1.A, yellow bars) and a decrease in credit (–$749 billion). Seasonal factors, eg the tendency for claims to contract at year end, accounted for roughly half of the overall decline in Q4.

The weakness in cross-border bank credit was evident across all major currencies (Graph 1.B). In Q4, US dollar-denominated credit fell by $293 billion to $14.6 trillion, 2% lower than at end-2021 (Graph 1.F). Euro-denominated credit, which had grown in the previous three quarters, dropped by $231 billion, the largest decline since end-2019. Even so, at $8.9 trillion, euro credit at end-2022 was 8% higher than at end-2021 (Graph 1.F), due to brisk growth in cross-border lending within the euro area. Sterling credit fell sharply (–$106 billion) against the backdrop of gilt market dysfunction in September-October 2022.

Cross-border credit to all sectors declined, with interbank positions contracting the most (Graphs 1.C and 1.G). Interbank credit shrank by $533 billion, although more than half of this reflects seasonality in the data. Interbank credit to unrelated banks and to related offices dropped by more than $250 billion each. Credit to non-banks fell by $199 billion, bringing the yoy growth rate to –0.3%.²

Market value of derivatives fell in Q4 following surges earlier in 2022

The market value of banks' derivatives positions fell in Q4 2022 (Graph 1.A), following three quarterly increases amid elevated market volatility and changing policy rates. The BIS consolidated banking statistics (CBS), which track the consolidated positions of banks headquartered in a given country, show the size of banks' derivatives books with unaffiliated counterparties (Graph 2.A and 2.B). Derivatives with a positive market value fell to $4 trillion by end-Q4 2022. Those with a negative market value moved in tandem, leaving net market values close to zero (Graph 2.A).

The rise and subsequent drop in derivatives positions over the course of 2022 was most pronounced vis-à-vis counterparties in the United Kingdom and the United States (Graph 2.B), countries with outsize roles in the clearing of derivatives. The LBS, which capture the market value of derivatives somewhat less precisely than the CBS, also show a relatively large decline vis-à-vis the United Kingdom (Graph 2.C), reported mainly by banks in France and Germany (Graph 2.D).³

Weaker dollar lending drives Q4 contraction in credit to EMDEs

Banks' cross-border credit to EMDEs declined by $179 billion in Q4 2022, driven by reduced lending in US dollars (Graph 3.A).⁴ Dollar credit fell by $142 billion (–6% yoy), the largest quarterly contraction since mid-2012. Credit in other major currencies also fell, but by far less. The relative weakness in dollar lending may reflect higher US policy rates and the strength of the dollar going into Q4 (see discussion of Graph 5 below). Overall, outstanding cross-border credit to EMDEs was down 2% yoy (Graph 1.H).

Credit to emerging Asia contracted by a sizeable $142 billion (Graph 3.B). Banks in the region, as well as those in the euro area and other AEs, all reported lower credit to borrowers (mainly non-banks and unrelated banks) in the region (Graph 3.D). Credit to Hong Kong SAR and Singapore fell by a combined $80 billion (Graph 3.C). By contrast, bank credit to China was flat overall as greater inter-office lending offset an outsize decline in lending to non-banks, the largest since Q1 2016 (see GLI section).

Banks winding down exposures to Russia

Banks continued to reduce their cross-border claims on Russia in Q4 2022, even as their liabilities to the country remained elevated (Graph 4.A).⁵ Cross-border claims on Russia dropped for the fourth consecutive quarter, for a total decline of $27 billion (–30%) since end-2021; at the same time, cross-border liabilities to the Central Bank of the Russian Federation grew by $85 billion⁶ (Graph 4.A, blue bars), reflecting mainly an accumulation of blocked coupon payments and redemptions at Euroclear.⁷ Liabilities to non-banks in Russia changed little over this period.

The CBS provide a more comprehensive view of how banks' consolidated exposures to Russia receded in the course of 2022. Since end-2021, banks' foreign claims on Russia dropped by more than a third and stood at $76 billion at year-end 2022 (Graph 4.B). French, US and Italian banks cut foreign claims the most during the year, in part through divestures of local offices. At the same time, CBS reporting banks also let about $10 billion of their short-term international claims run off. Other potential exposures (Graph 4.C) fell by even more over the same period (–72%) to $14 billion.

Global liquidity indicators at end-December 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).⁸

In Q4 2022, foreign currency credit denominated in US dollars continued to fall while that in euros and yen expanded (Graph 5). Dollar credit to non-banks outside the United States fell by $257 billion to $12.8 trillion. This led to a yoy shrinkage of 4%, a rate last seen during the Great Financial Crisis of 2007–09 (Graph 6.A). By contrast, growth in euro credit to non-banks outside the euro area remained resilient at 8% yoy, bringing the amount outstanding to €4 trillion ($4.2 trillion) (Graph 6.B). Yen credit to non-banks outside Japan expanded further in Q4 (+17% yoy) fuelled by bank loans (Graph 5.C, Annex Graph C.3).

The divergence in credit growth across the three major currencies reflects their respective funding costs and associated exchange rate developments.⁹ The rapid pace of US monetary policy tightening during 2022 led to an exceptionally strong dollar going into the fourth quarter of 2022 (Graph 5.A, Annex Graph C.1). By September 2022, the US dollar had reached its highest level since the 1980s, making it expensive relative to other major currencies and depressing dollar-denominated foreign currency credit.¹⁰ Euro credit started to reflect rising rates and higher valuations later in 2022 (Graph 5.B). By contrast, the Bank of Japan's commitment to monetary easing and protracted depreciation have made the yen a preferred funding currency, fuelling brisk growth in yen-denominated credit abroad (Graph 5.C).

These developments first affected dollar- and later euro-denominated credit to non-banks in EMDEs (Graph 6). In Q4 2022, credit in both currencies declined, leaving the respective stocks at $5.2 trillion and €0.9 trillion (Graph 6.A). Dollar credit contracted by more than $100 billion for a second consecutive quarter (Graph 6.B), due mainly to reduced bank lending (recall Graph 3) to non-banks in Asia-Pacific (credit to those in China fell by $52 billion). Elsewhere, dollar credit to Africa and the Middle East and emerging Europe dropped, while that to Latin America rose.

For its part, euro credit to non-banks in EMDEs fell sharply in Q4 2022 (Graph 6.C), following two years of uninterrupted growth. Loans shrank by €18 billion, while net issuance of IDS ticked down (–€1 billion). Euro credit to Asia-Pacific contracted the most, followed by that to emerging Europe. By contrast, euro credit to Africa and the Middle East and to Latin America expanded. The latest Q4 contraction notwithstanding, yoy growth in euro credit to EMDEs remained positive at end-2022, at 5%.

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¹   After reaching record highs in Q3, the US dollar depreciated against many currencies during Q4 2022. Dollar depreciation increases the amounts outstanding in other currencies when expressed in US dollars. Quarterly changes are reported on an adjusted basis, after removing such exchange rate valuation effects and statistical breaks.

²   The March 2023 BIS Quarterly Review noted that bank lending was restrained in Q4 2022, with lending surveys in the United States and euro area showing widespread retrenchment.

³   In the LBS used in Graphs 2.C and 2.D, the market value of derivatives is reported in "other instruments" together with banks' holdings of equity and other instruments not otherwise classified.

⁴   This decline was broadly unrelated to year-end effects: it was almost as large ($160 billion) on a seasonally adjusted basis.

⁵   The positions vis-à-vis Russia are reported by other BIS reporting countries. The BIS ceased to receive data submissions from the authorities in Russia in February 2022. Local positions booked by banks in Russia, and their positions vis-à-vis counterparties abroad, were last reported for Q3 2021.

⁶   On an FX- and break-adjusted basis, the corresponding changes were –$22 billion (claims on all sectors) and +$88 billion (liabilities to central bank), respectively.

⁷   www.euroclear.com/newsandinsights/en/press/2023/2023-mr-01-euroclear-group-delivers-another-record-year.html.

⁸   For more details, see the GLI methodology:    www.bis.org/statistics/gli/gli_methodology.pdf.

⁹   Since quarterly changes are adjusted, exchange rate fluctuations do not affect the growth rates reported in Graph 5 in a direct, mechanical way.

¹⁰   A growing literature documents that dollar strength leads to tighter global financial conditions, especially for emerging market economies, see eg V Bruno and H S Shin, "Cross-border banking and global liquidity", Review of Economic Studies, vol 82, no 2, 2015; M Obstfeld and H Zhou, "The global dollar cycle", Brookings Papers on Economic Activity, 2023 (forthcoming).