A recently completed study by Fund staff that examined recent developments in international capital markets shows that despite previous uncertainty regarding the market’s ability to cope with the financial impact of the 1979–80 oil price increase, aggregate net flows (bank lending plus bond issues) in 1980 were 57 per cent above those recorded in 1978 (Chart 1). During 1981, however, the global sum of current account deficits increased only marginally (Chart 3), and the U.S. dollar value of international trade declined, while real output and investment in the industrial countries stagnated. As a result, the growth of international lending slowed, and aggregate net flows of US$195 billion in 1981 were only 9 per cent above the 1980 total of $179 billion (Chart 1). This slower growth in net lending was accompanied by relative shifts in both sources of funds and in borrowers, as well as by a general tightening of lending terms. Nevertheless, the share of international assets as a per cent of total bank assets increased again in 1981 (Chart 4), a trend that has been in evidence since 1973.
Chart 1Net lending through international capital markets, 1973–81
Sources: Bank for International Settlements; and Organization for Economic Cooperation and Development, Financial Statistics Monthly.
1Measured in U.S. dollars; for the years after 1976, adjusted for valuation effects of exchange rate changes.
2Bond issues and placements are net of repayments and exclude double counting due to banks’ issuing and holding of bonds; new bank claims are net of interbank transactions.
During 1979 and 1980, increased deposits from the oil exporting countries had been a major source of new bank funds, amounting to close to $40 billion in each year, but in 1981 net new deposits from those countries were $4 billion (Chart 2). Banks therefore turned to the industrial country financial markets to offset the slow growth in oil exporter deposits. With lending to industrial countries increasing only marginally in 1981, the net flow of funds from the industrial countries to the rest of the world via the international banking system rose from $7 billion in 1980 to $42 billion in 1981. The distribution of bank lending showed little change in 1981, with the volume of net lending to industrial countries and non-oil developing countries increasing marginally and lending to oil exporting countries declining (Chart 3).
Chart 2Sources of new bank deposits, 1978–811
Sources; Bank for International Settlements and Fund staff estimates.
Note: details may not add to totals due to rounding.
1 As reported by the Bank for International Settlements (BIS), the BIS reporting area comprises banks in Austria, Belgium, Canada, Denmark, France, the Federal Republic of Germany, Ireland, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States, as well as branches of U.S. banks in the Bahamas, the Cayman Islands, Hong Kong, Panama, and Singapore.
2Excludes Fund member countries, except Hungary.
Chart 3Current account positions and new private market financing, 1978–81
Sources: Bank for International Settlements; Organization for Economic Cooperation and Development; World Economic Outlook, IMF Occasional Paper No. 9 (April 1982); and Fund staff estimates.
1Almost all borrowing was from banks.
2Excludes Fund members from Eastern Europe, except Hungary.
Chart 4Concentration of international bank claims, 1973–811
Source: Bank for International Settlements (BIS).
1 Excludes interbank transactions within the BIS reporting area, which includes Austria, Belgium, Canada, Denmark, France, the Federal Republic of Germany, Ireland, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States, as well as branches of U.S. banks in the Bahamas, the Cayman Islands, Hong Kong, Panama, and Singapore.
2 Excludes “Rind member countries, except Hungary.
From the viewpoint of borrowers, the rise in real interest rates in 1981 constituted a significant hardening of terms. Weighted average lending spreads over LIBOR (London Inter-bank Offered Rate), however, showed little change in 1981, remaining a little below ¾ per cent (Chart 5). The average maturity of new commitments appears to have stabilized at slightly less than eight years for both industrial and developing country borrowers, after declining since the middle of 1979.
Chart 5Terms on international bank lending, 1973–81
Source: World Bank.
1 London Inter-bank Offered Rate.
2 Medium-term publicized international bank credit commitments.
For the first time since 1975, the proportion of net lending through the international capital markets accounted for by international bonds increased, as net bond issues rose by over 30 per cent between 1980 and 1981. While industrial country borrowers accounted for most new issues, international organizations were responsible for 18 per cent and developing countries for 7 per cent (Chart 6).
Chart 6International bond markets, 1978–81
Sources: World Bank, Borrowing in International Capital Markets, and Organization for Economic Cooperation and Development, Financial Statistics Monthly.
Note: details may not add to totals due to rounding.
1 Three month deposits.
2 Bonds with remaining maturity of 7–15 years.
3 Figures shown below graphs represent totals for each year.
For the full study upon which this selection is based, see: Richard C. Williams, G.G. Johnson, K. Burke Dillon, and Donald J. Mathieson, International Capital Markets: Developments and Prospects, 1982, Occasional Paper No. 14, International Monetary Fund, Washington, DC, 1982. Copies of this and other Occasional Papers are available, at US$5 per copy (US$3 for university libraries, faculty, and students), from the Publications Unit, International Monetary Fund, Box A-100, Washington, DC 20431 U.S.A.