Transcript INFORME DE POLÍTICA MONETARIA

Credit Trends in LA:
The Chilean Experience
José De Gregorio
Vice Governor
Central Bank of Chile
1
APRIL 2006
Contents
1. Credit growth and booms: characteristics
2. Credit trends in LA
3. Credit trends in Chile
4. Concluding remarks
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Credit growth and booms:
characteristics
Credit can grow rapidly for three reasons:
 financial deepening (trend)
 normal cyclical upturns
 excessive cyclical movements (“credit booms”)
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Credit growth and booms:
characteristics
What do credit booms looks like?
Credit booms in emerging market countries have
five key characteristics (WEO, April 2004):
 They are much less common than episodes of rapid




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credit growth
They are synchronized across countries
They are somewhat asymmetric
There is almost a 70 percent probability that a credit
boom coincides with either a consumption or
investment boom
They are often associated with banking and currency
crises
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Credit growth and booms:
characteristics
 What do credit booms looks like?
 Credit
booms
are
associated
macroeconomic fluctuations as follows:
with
 Credit booms are associated with a cyclical upturn,
followed by a sharp downturn, in economic activity and
private absorption
 Credit booms are associated with a rapid increase, and
subsequent fall, in the price of nontradables relative to
tradables
 Credit booms are accompanied by an increase in real
stock prices and a subsequent dramatic drop
 Credit booms do not have a major effect on inflation
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Credit trends in LA

Domestic credit in LA has
showed an increasing trend
in the last decade
Domestic Credit
100
90
80

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A key question is whether
strong credit growth is part
of the ongoing process of
"financial deepening“ or
whether some countries are
now experiencing a credit
boom, a situation where
credit is expanding at an
unsustainable pace
% of GDP
70
60
50
40
30
20
10
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Argentina
Honduras
Bolivia
Mexico
Source: IFS.
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Brazil
Peru
Chile
Uruguay
Colombia
Credit trends in LA

Financial deepening is still
relatively low in LA vis-à-vis
industrialized economies (and
even
other
groups
of
developing economies: East
Asia, Middle East, and North
Africa)
Domestic Credit (% GDP, 2004)
United Kingdom
Japan
New Zealand
Australia
United States
Canada
Chile


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Small and open industrialized
economies such as Australia,
Canada and New Zealand have
much higher levels of domestic
credit than the average LA
country
Brazil
Uruguay
Argentina
Bolivia
Honduras
Colombia
Japan, UK and the US also show
credit-to-GDP ratios relatively
high
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Mexico
Peru
0
20
40
60
Source: IFS.
APRIL 2006
80
100
120
140
160
180
Credit trends in Chile
 In
the recent cycle,
credit has increased
significantly
in
all
sectors
 But,
rapid
credit
growth
has
been
particularly strong in
the retail and housing
sectors
50
50
Anual growth
40
40
30
30
20
20
10
10
0
0
-10
Personal Loans
Total
-20
Jan-1995
-20
Jan-1997
Jan-1999
Source: SBIF.
8
-10
Mortgage
Corporate
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Jan-2001
Jan-2003
Jan-2005
Credit trends in Chile
 However, the increasing
12
10
% total credit
trend is more associated
to recovery from the last
recession rather than
continuous growth in
credit
Retail Credit
8
6
4
2
Jan89
Jan91
Jan93
Jan95
Source: SBIF.
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Jan97
Jan99
Jan01
Jan03
Jan05
Credit trends in Chile
 Household credit (retail and
housing) has increased its
participation in recent years
 Commercial loans remain
the most important source of
risk
 However, the increasing
credit growth to the other
sectors should be a matter of
concern
Bank loans by type
100%
(% of total loans)
80%
60%
40%
20%
0%
1990
corporate
1995
mortgage
Source: SBIF.
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2000
2005
personal loans
Credit trends in Chile
Corporate Total Debt
(% of the GDP)
110
100
90
80
70
60
50
40
30
20
10
0
95
96
External debt
97
98
99
00
01
02
03
Com m ercial lending and other
Source: Calculations based on SVS, SBIF and ACHEF information
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04
05
Issued debt
Credit trends in Chile
Household Debt
(% of the GDP)
30
25
Other consumer lending
20
Consumer lending with banks
15
10
Mortgage
5
0
Sep-03
Mar-04
Sep-04
Mar-05
Source: SBIF, SVS, SuSeSo, Central Bank of Chile
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Sep-05
Credit trends in Chile
Debt – Disposable Income Ratios (DIR)
(%)
50
DIR consumer loans, maturity of less than 1 year
45
40
35
30
DIR consumer loans, maturity of over 1 year
25
20
15
DIR mortgage
10
5
0
Dec-01
Jun-02
Dec-02
Jun-03
Dec-03
Jun-04
Dec-04
Source: SBIF, SVS, SuSeSo, Central Bank of Chile
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Jun-05
Credit trends in Chile
Debt Service – Disposable Income Ratios (SIR)
(%)
18
16
14
12
10
SIR consumer loans, maturity of less than 1 year
8
6
SIR consumer loans, maturity of over 1 year
4
2
SIR mortgage
0
Dec-01
Jun-02
Dec-02
Jun-03
Dec-03
Jun-04
Dec-04
Source: SBIF, SVS, SuSeSo, Central Bank of Chile
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Jun-05
Credit trends in Chile
Household Lending*: International Comparison
30
0
(*) Total household lending (retail and mortgage) for period 1999-2001, except for Chile, which corresponds to
October 2004.
Source: ECB, Central Bank of Chile, own countries central banks
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Chile
Italy
Austria
Belgium
60
France
Finland
Spain
Portugal
Ireland
90
Germany
120
Holand
150
(% of the GDP)
Credit trends in Chile
Consumer Loans Indicators (SIR and DIR):
International Comparison
15
Ireland
Germany
)*( USA
Spain
10
EU
SIR
Chile
5
0
0
20
(*) Maturity of over 1 year for all countries, except
for USA. Total SIR and total DIR for USA
40
60
80
100
DIR
Source: Central Bank of Chile
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120
Credit trends in Chile
Although a matter of concern, the rapid
growth in Chile has been positive:
 Driven by domestic demand, it has boosted
consumption, while low real interest rates are
providing a stimulus to investment
 Against this background, inflationary pressures
have not picked up and the current account
deficit has remained reduced
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Concluding remarks
 Credit
booms are not easy to identify,
calling for policymakers to make difficult
judgments
 The effects of the increasing domestic
credit in LA are not clear
 The signs accompanying credit expansion
should be a matter of concern: growing
macroeconomic, financial and corporate
imbalances
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Concluding remarks
Measures are needed to reduce the risks that
are associated with strong credit growth:
 Improving surveillance of the banking system
 Increasing scrutiny of corporate borrowing
 Tightening macroeconomic conditions
 Better inform borrowers about the risks they face
and how exchange and interest rate movements
could affect their debt-servicing costs
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References
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•
Betancour C., J. De Gregorio and A. Jara (2006), “Improving
the Banking System: the Chilean Experience”, Economic
Policy Paper Nº 16, Central Bank of Chile, March.
•
Central Bank of Chile (2005), “Financial Stability Report”,
second half.
•
IMF (2004), World Economic Outlook (WEO), ch. IV, April.
•
Ipes (2005), Unlocking Credit: the Quest for Deep and Stable
Bank Lending, IADB.
CENTRAL BANK OF CHILE
APRIL 2006
Credit Trends in LA:
The Chilean Experience
José De Gregorio
Vice Governor
Central Bank of Chile
21
APRIL 2006