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Emerging Markets' Bank Lending Conditions Deteriorate In Q1: IIF

Bank lending conditions in emerging markets deteriorated for a third consecutive quarter, a survey by the Institute of International Finance (IIF) showed Monday.

The IIF index of emerging market bank lending conditions (EMLC) remained below 50 implying an overall deterioration during the first quarter of 2012. However, the pace of deterioration was slower than in the previous quarter.

The global EMLC index rose to 48.6 in the first quarter of 2012 from 44.7 in the fourth quarter of 2011 and 49.1 in third quarter of 2011. This improvement was supported by policy measures taken by
central banks in both emerging and mature economies, particularly the European Central Bank, in recent months.

Banks in emerging Europe reported the most significant improvement in external funding conditions in the first quarter, the survey report said.

It also said that the overall demand for loans declined for the first time in the two and a half year history of the survey. Encouragingly, overall conditions for international trade finance have strengthened over the past three months.

IIF said that overall tightening in international funding conditions has been weighing on economic growth in emerging economies for almost a year.

In a separate release, IIF Managing Director Charles Dallara urged euro area to "increase the resources of its firewall and enhance the flexibility and timeliness of the deployment of these resources to make them effective in times of crises."

He noted that significant deleveraging by banks is contributing to European recession and therefore authorities should work towards stabilizing regulatory capital requirements and avoid any further surcharges on bank capital while addressing the identified deficiencies in the proposed Basel III liquidity rules.

He also urged European governments to adopt a more balanced fiscal policy approach.

by RTTNews Staff Writer

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