Bank lending to emerging markets at risk from DM more than EM factors, BIS finds | beyondbrics

Are emerging markets decoupled or not decoupled from the stresses afflicting developed markets? There was more evidence on Monday that they are less decoupled than they would like.

It comes in a study from the Bank for International Settlements which looks at the reasons for contractions in cross-border bank lending from DMs to EMs in 2008 and 2011. While EM factors had a big part to play in the first contraction, it finds, the contraction in lending in 2011 was almost entirely determined by problems in the countries of origin – especially in Europe.

The BIS study, ‘The euro area crisis and cross-border bank lending to emerging markets’, has clear implications for lending to emerging markets as the eurozone crisis develops. Its first finding (see chart above) is that bank lending went into reverse in the fourth quarter of 2011 as the crisis worsened, and declined sharply again in the second quarter of this year.

* username: rupertbu