Managing Elevated Risk by Iwan J. Azis & Hyun Song Shin

Author:Iwan J. Azis & Hyun Song Shin
Language: eng
Format: epub, pdf
Publisher: Springer Singapore, Singapore

How significant is the link between bank-led flows and noncore liabilities ? Figure 4.4 summarizes this link for emerging Asia . As the cumulative change (increase) of bank-led flows surged before the global financial crisis, so did noncore bank liabilities . When they dropped off during the crisis, the cumulative change of noncore liabilities also declined, before surging back from 2009 to 2012.3 The US Fed announcement over the possibility of policy normalization and QE tapering in mid-2013 rattled several emerging Asian markets. Together with the growing expectation that recovery in advanced economies was imminent, it led to capital outflows and another round of volatility . As shown in Fig. 4.4, bank-led flows fell during 2012–2014, causing noncore liabilities to fall as well. Clearly, bank-led flows have been the major driver behind the increase in noncore liabilities during that period (see Appendix for the impact on individual economies).4

Fig. 4.4Capital inflows and noncore liabilities—emerging Asia (cumulative change, $ billion). Asterisk (*) figures are IIF estimate (2013) and IIF forecast (2014). Notes Emerging Asia refers to China, People’s Republic of; India; Indonesia; the Republic of Korea; Malaysia; the Philippines; and Thailand. Noncore liabilities data do not include India and the Philippines. Bank-led flows = Net disbursements from commercial banks (excluding credits guaranteed or insured under credit programs of creditor governments). This generally includes bond purchases by commercial banks. Portfolio and debt-led flows = Equity investment and net external financing provided by all other private creditors. The latter includes flows from nonbank sources into bond markets, as well as deposits in local banks by nonresidents other than banks. It also includes credit by suppliers (excluding credits guaranteed or insured under credit program of creditor governments), identified private placements of debt securities, and other financial securities issued in local or foreign currencies. Finally, it includes estimated interest payments due but not paid and estimated payments flows with private creditors other than commercial banks resulting from discounted debt transactions. Source IIF and national sources

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