Transcript Credit Growth: Enhanced Access or Higher Risk

Credit Growth: Enhanced Access or
Higher Risk
by
Giovanni Majnoni
IADB
“XXIII Meeting of the Latin American Network of
Central Banks and Finance Ministries”
Washington, April 20-21, 2006
1
Credit grows faster than in other regions while
interest rates have broadly converged
Source: IMF WEO, 2006
2
1
Consumption remains strong while current account
surplus and capital inflows increase liquidity
Source: IMF WEO, 2006
3
2
No surprise that retail credit grows faster:
consumer credit growth is generalized …
Consumer credit as a % of GDP
2001
2002
2003
2004
2005
9
8
7
in %
6
5
4
3
2
1
0
Argentina
Chile
Colombia
Ecuador
Sources: IMF, Central Banks and Banks Superintendencies.
Mexico
Peru
4
3
… while housing finance growth is not uniform
Vivienda as a % of GDP
2001
2002
2003
2004
2005
16
14
12
in %
10
8
6
4
2
0
Argentina
Chile
Colombia
Ecuador
Sources: IMF, Central Banks and Banks Superintendencies.
Mexico
Peru
5
4
The private sector has resorted to self-financing and
foreign lending but not to commercial credit
Commercial credit as a % of GDP
2001
2002
2003
2004
2005
60
50
in %
40
30
20
10
0
Argentina
Chile
Colombia
Ecuador
Sources: IMF, Central Banks and Banks Superintendencies.
Mexico
Peru
6
5
Consumer lending is still small when compared to
East Asia …
Consumer loans vs GDP per Capita
constant 2000 US$
35,000
GDP per capita
Consumer loans to GDP
% of GDP
35
25,000
25
20,000
20
15,000
15
10,000
10
5,000
5
0
0
o
ex
ic
M
tin
en
rg
A
C
hi
le
P
C eru
ol
om
b
Ec ia
ua
H
do
on
r
g
K
Si ong
ng
ap
or
Ta e
iw
an
K
or
Th ea
ai
la
nd
C
Ph hin
a
ili
pp
i
In nes
do
ne
sia
In
di
a
30
a
30,000
Sources: World Bank, Fitch, Central Banks and Banks Superintendencies.
7
6
… leaving room for further substantial growth
(income inequality may represent a constraint) …
Consumer loans to Private Consumption
60
50
30
20
10
0
C
hi
le
C
ol
om
bi
Ec a
ua
do
r
M
ex
ic
A
o
rg
en
tin
a
Pe
ru
K
or
e
Si
ng a
ap
or
e
Ta
iw
a
Th n
ai
la
H
on nd
g
K
on
In
g
do
ne
sia
C
hi
na
In
di
Ph
a
ili
pp
in
es
in %
40
Sources: IMF, Fitch, Central Banks and Banks Superintendencies.
8
7
… but rapid growth in the supply of new products
may generate new risks
Credit cards loans
Index, Dec-02=100
300
280
Mexico
260
240
220
200
180
Argentina
160
140
120
100
3
pr
-0
3
Ju
n03
A
ug
-0
3
O
ct
-0
3
D
ec
-0
3
Fe
b04
A
pr
-0
4
Ju
n04
A
ug
-0
4
O
ct
-0
4
D
ec
-0
4
Fe
b05
A
pr
-0
5
Ju
n05
A
ug
-0
5
O
ct
-0
5
D
ec
-0
5
A
-0
Fe
b
D
ec
-
02
80
Sources: BCRA and CNBV.
9
8
A credit card crisis in Korea in 2003 highlighted
weaknesses in risk management and governance
Severity: write-offs close to 30% in 2003 and 2004
Causes:
• Lack of adequate credit information (only positive
info) on individuals
• Imported models of credit scoring that did not
screen high risk borrowers
• Use for cash advances and not for transactions
• High lending rates
The impact on retail credit was mitigated by the
conservative LTV ratios in housing finance (between
60% and 70%) that have avoided a spillover.
10
9
Loans of different size require different risk
management strategies
Credit losses distribution in Chile for loans above and below US 21,000
Año 2001
9%
8%
7%
Frecuencia
6%
5%
4%
3%
2%
1%
0%
0,19%
1,22%
2,25%
3,28%
4,31%
5,34%
6,37%
7,41%
PE Exp MM$ >= 10
D = 0,16 ; p < 0,01
PE 1 < Exp MM$ < 10
D = 0,02 ; p < 0,01
8,44%
9,47%
10,50%
11,53%
12,56%
11
10
Main lesson: credit growth translates into credit
risk if risk management and governance is poor
+
+
+
CRVolume= f(i, risk governance, risk assessment)
+
CRRisk = f(i, risk governance, risk assessment)
Policy implication : Increased access to credit
and bank solvency share a common reform and
policy agenda.
12
11
Bring risk management and governance into the
policy agenda
Limited attention to risk governance is a major
shortcoming of Basel II:
1. Quantitative aspects of risk management (measurement
of RWA)
2. Inadequate attention to capital requirements at a
consolidated level (consolidation stops at the bank
holding group not at the ultimate owners);
3.Cursory mention to internal risk control.
The new Basel Core Principles and BCBS documents
on bank governance address previous issues
13
12
Toward an integrated approach to risk
management and governance
• From compliance with Basel to country’s specific
strategies of risk management and governance.
• From FSAP based “assessments” to a “Roadmap to
credit risk management and governance” defined
along four key dimensions:
1. Banks credit risk management
2. Banks credit risk governance
3. Risk based supervision
4. Credit information infrastructures (legal and
technical)
14
13
Thank You
[email protected]
15
14