Developments in UK international banking statistics

Transcription

1 Developments in UK international banking statistics by Pat O Connor Tel: E mail: pat.o connor@bankofengland.co.uk Data published by the Bank for International Settlements (BIS), available via their website at show the UK to be one of the major financial centres for international banking. This article considers the importance of the UK within this market and explores both locational and consolidated data, looking at changes in the composition of the data over the last 10 years and differences within the two datasets. A complete breakdown of the UK s international banking data is available in Tables C3.1 to C4.1 of this publication, while long runs can be accessed via the Statistical Interactive Database on the Bank of England s website at Summary The UK plays a very important role in the international banking market and while the composition of UK banks external business has changed over the last ten years, overall it appears to have remained fairly risk adverse. External assets and liabilities of UK resident banks are dominated by position vis-à-vis developed countries, while the share of business with developing countries has fallen. The majority of this business is euro and US dollar denominated, with the euro increasing in importance over recent years. Also, the currency split of external assets and liabilities seems well matched, suggesting that currency risk is being minimised. The picture is a little different for UK-owned banks consolidated claims. While claims are still dominated by developed countries the percentage share is not as great. However, risk transfer data show that risk is being transferred, through guarantees, out of Offshore Centres and developing countries in to developed countries, thereby reducing the risk profile of UK-owned banks. Background Data relating to banks international business within the BIS reporting area have been collected from the early 1970s, with the UK one of the original reporting countries. There are two main international banking datasets compiled by the BIS; locational data, which covers business of banking offices located within the BIS reporting countries, regardless of their nationality of ownership, and consolidated data, which covers the worldwide claims of banking groups whose head offices are registered within the BIS reporting countries, thus including exposures of both domestic and foreign offices. Box 1 provides more detail on these two datasets for the UK and compares the main differences. Locational data External assets and liabilities of BIS-reporting countries 1, reported on a locational basis, stood at $14,845 billion 1 BIS reporting countries for locational data comprise: Austria, Bahamas, Bahrain, Belgium, Bermuda, Brazil, Canada, Cayman Islands, Chile, Denmark, Finland, France, Germany, Guernsey, Hong Kong, India, Ireland, Isle of Man, Italy, Japan, Jersey, Luxembourg, Netherlands, Netherlands Antilles, Norway, Panama, Portugal, Singapore, Spain, Sweden, Switzerland, Taiwan, Turkey, United Kingdom and United States. 5 and $14,285 billion respectively, at end-june The UK accounted for the largest share of both, with external assets of $2,814 billion (19% - Chart A) and external liabilities of $3,100 billion (22%) 2. The UK s external business has almost trebled over the last ten years and the composition of the increase in assets and liabilities is considered separately within this article. Chart A: Market share of external claims of BIS reporting area banks United Kingdom Germany United States Cayman Islands Japan Source: Bank for International Settlements (BIS). The importance of external business to the UK banking sector as a whole is shown in Chart B, which shows the percentages of external assets and liabilities relative to the total balance sheet of UK resident banks. The share of external business gradually declined between 1995 and 1998, from around 5 to 4 of the total balance sheet, possibly reflecting concerns over a slowdown in the global economy, particularly in emerging market countries. However, since 1998, the percentage share has levelled out and at end-june 2003, external assets and liabilities accounted for 4 and 44% of the total UK resident banks balance sheet, respectively. Throughout this period UK resident banks have been net deposit takers from abroad. Chart B: Percentage share of external business of UK resident banks' balance sheets Assets Liabilities 2 Although end-september 2003 data are available for the UK, end-june data has been used to allow comparison to BIS data which is always published three months in arrears to UK data. 25% 2 15% 5%

2 Table 1 - Breakdowns of UK resident banks external assets Amounts outstanding ($ billions) Percentage share Q Q2 By Sector Central Monetary Institutions % 0.3% 0.5% 0.6% 0.7% Other non-resident banks 708 1,136 1,355 1,523 1, % 67.4% 62.5% 61.5% 60. Other non-residents , % 32.3% % 39.2% By Currency Sterling % 11.4% 10.6% 10.1% 10. US dollar , % 43.2% 44.3% 39.1% 36.9% Euro (a) , % 17.7% 31.4% 36.4% 39.7% Japanese yen % 6.7% 7.1% 6.2% Swiss franc % 2.9% 2.1% 1.9% 1.8% Other currencies and unallocated % 14.9% 4.9% 5.5% 5.5% By Nationality British % 18.6% % German % 19.1% 18.8% 18.7% 19.9% Swiss % % 14.7% 15.2% American % 12.2% 11.1% 9.2% 8.3% Dutch % 3.1% 6.2% 7.1% 7.5% French % 5.5% 6.1% 6.1% 6.7% Japanese % 12.1% 6.9% 7.1% 5.2% Italian % 4.8% 3.4% 2.6% 2.5% Other nationalities & unallocated % 14.5% 11.4% 10.6% 10.6% Total 1,054 1,685 2,168 2,477 2, (a) Pre 1999 this includes ECU, Deutsche mark and French franc, other pre-euro currencies are included within Other currencies and unallocated. Source: Bankof England. Assets Analysis by region Chart C shows that external assets are predominately held with developed countries, accounting for 85% of total external assets at end-june 2003 (53% European and 32% Other). Of the remainder, Offshore Centres accounted for of the total and developing countries just 4%, the latter fairly evenly spread over the main regions 3. Chart C - UK resident banks' external assets by region Developed Europe Other Developed Countries Offshore Centres Total Developing Countries International Organisations The percentage share of external assets held with developed countries has steadily increased over the last ten years, having stood at 79% at end-december 1993, with the majority of the increase in Developed Europe. The region with the largest reduction over this period is developing countries, falling from a 9% share at end- December 1993, particularly against Latin America & the Caribbean and Africa & the Middle East. Analysis by sector Table 1 shows that external assets are dominated by the banking sector, partly reflecting the inclusion of intra-group business within the locational statistics, which accounted for 36% of total external claims at end-june Over the last ten years lending to nonresidents other than banks has increased, with the 3 Africa & the Middle East accounted for 32% of asset with developing countries, Asia & Pacific 28%, Developing Europe 24% and Latin America & the Caribbean 16% percentage share between banks and non-banks narrowing from a 7/3 split at end-december 1993 to 6/4 at end-june Analysis by currency US dollar and euro currencies dominate the external assets of UK resident banks, while sterling only accounts for. The dominance of the US dollar in UK external business had been quite consistent until the late 1990s, but this changed with the introduction of the euro. Euro external assets almost doubled between end-december 2000 and end-june 2003, and overtook the US dollar to account for 4 of total external assets at end-june 2003 compared to 37% for US dollars. The other three reported currencies, sterling, Japanese yen and Swiss franc, have maintained a consistent share of external assets over the last ten years. Analysis by nationality British banks have the largest share of UK external assets, accounting for 24% of the total at end-june These are followed closely by German and Swiss banks, with 2 and 15% respectively. American, Dutch, French and Japanese banks each account for a similar proportion of external assets. These seven nationalities combined account for 87% of UK resident banks external assets. However, this profile has changed over the last ten years. At end-december 1993, Japanese banks had the largest proportion of external assets, with 23%, followed by British and German banks, with 18% and 15% respectively, while Swiss banks accounted for only 5% of external assets. The large fall in the Japanese banks share, partly reflects the change in business focus and consolidation of the Japanese banking sector. In general, the largest proportion of the external assets of each of the non-british banks is vis-à-vis their own countries, again reflecting the inclusion of intra-group business within the data.

3 Table 2 - Breakdowns of UK resident banks external liabilities Amounts outstanding ($ billions) Percentage share Q Q2 By Sector Central Monetary Institutions % 6.9% 5.5% 5.7% 5.6% Other non-resident banks 729 1,164 1,572 1,779 2, % 65.7% 67.3% 65.1% 65. Other non-residents % 24.1% 23.2% 24.5% 24.9% International issue of securities % 3.2% % 4.5% By Currency Sterling % 13.1% 14.4% 14.3% 13.9% US dollar ,062 1,088 1, % 39.5% 45.5% 39.8% 38.1% Euro (a) % % 32. Japanese yen % 10.5% % 5.3% Swiss franc % 2.3% 1.8% 1.7% 1.6% Other currencies and unallocated % 17.6% 8.4% 9.3% 9. By Nationality British % 16.2% 18.9% 21.4% 21.4% German % 14.9% 14.1% 14.6% 16.8% Swiss % 10.8% 12.8% 13.9% 14.6% American % 11.3% 11.3% 9.4% 9.1% Dutch % 5.3% 5.5% 6.5% French % % 4.2% 4.2% Japanese % 10.3% 6.4% 5.8% 4. Italian % 3.6% 2.2% 1.5% 1.4% Other nationalities & unallocated % 25.2% 24.1% 23.8% 22. Total 1,132 1,772 2,335 2,732 3, (a) Pre 1999 this includes ECU, Deutsche mark and French franc, other pre-euro currencies are included within Other currencies and unallocated. Source: Bankof England. Liabilities Analysis by region External liabilities are predominately held against developed countries, accounting for 74% of total external liabilities at end-june 2003 (5 European and 24% Other). While Offshore Centres accounted for just under one fifth of deposits into the UK, developing countries accounted for only 8% of total external liabilities, almost half of which came from Africa & the Middle East. (Chart D) Chart D - UK resident banks' external liabilities by region Developed Europe Other Developed Countries Offshore Centres International Organisations Total Developing Countries The percentage share of external liabilities to developed countries has remained at approximately three quarters of the total over the last ten years. However, the region where the largest reduction has been seen over the same period is developing countries, which had a 13% share at end-december 1993, with the fall mostly against Africa & the Middle East. A corresponding increase has been seen in Offshore Centres, where the percentage share has increased from 11% at end-december 1993 to 18% at end-june Analysis by sector Table 2 shows that external liabilities are dominated by the banking sector, again reflecting the inclusion of intra-group business within the data, which accounted for 38% of total external liabilities at end-june However, unlike external assets, this share has remained consistent over the last ten years, with banks accounting for approximately 65% of external liabilities and other non-residents 25%. The percentage share of CMIs has fallen slightly, while there has been a small increase in the share of international securities. Analysis by currency US dollar and euro currencies dominate external liabilities of UK resident banks, with sterling a distant third. As was seen with external assets, the strength of the US dollar had been quite consistent until the introduction of the euro. Although euro external liabilities have more than doubled since end-december 2000, they remain behind US dollars, with 32% of external assets compared to 38% for US dollars. Of the three other reported currencies, sterling and Swiss franc maintained a consistent share of external assets over the last ten years, while Japanese yen had an increasing share until the late 1990s, but has fallen away again over the last few years. Overall the currency composition of UK resident banks external assets and liabilities is well matched, suggesting currency risk is being minimised. Analysis by nationality British banks have the greatest share of UK external liabilities, accounting for 21% of the total at end-june 2003, followed by German and Swiss banks with 17% and 15% respectively. American, Dutch, French and Japanese banks are all some way behind. The seven nationalities combined account for 78% of UK resident banks external liabilities. As was seen with external assets, this profile has changed over the last 10 years. At end-december 1993 Japanese banks had the largest proportion of external liabilities, accounting for 2, followed by British and German banks, with 16% and 14% respectively, while Swiss banks were a long way behind with only a 5% share. Again, the large fall in the Japanese banks share, partly reflects the change in business focus and consolidation of the Japanese banking sector.

4 Box 1: Locational versus Consolidated data The two main sets of statistics covering UK banks international business are locational and consolidated data. The locational dataset covers cross-border business of banking offices resident in the UK, while the consolidated dataset covers the claims on non-residents of UK-owned banks offices worldwide. The locational data are shown in Tables C3.1 to C3.4, while the consolidated dataset is shown in Table C4.1. Both sets of data are published in US dollars to allow for easier international comparisons, particularly with the corresponding statistics published by the Bank for International Statistics (BIS). Each dataset gives a different picture of the international banking market in the UK, and the main differences are detailed below. Measure Locational data Consolidated data UK resident banks with non-resident business of more Reporting banks than 100mn in all currencies or 20mn in sterling, All UK-owned banking groups (including their banking provide a breakdown of this business. All UK banks offices worldwide) are included in the total Number of banks/coverage Approximately 270 banks with a 98% coverage of nonresident business, for the breakdown. All banks are included in the total so this has 10 covereage. 22 banking groups with a 10 coverage Consolidation Only covers the business of the UK reporting bank and therefore includes intra-group business with office outside the UK Covers all banking offices worldwide with intra-group business netted out Instrument Coverage: Assets Cross-border loans, advances and repos; lending under ECGD (1) bank guarantee; certificates of deposit, commercial paper and bills issued by non-residents; net holdings of shares and other securities issues by nonresidents (net short positions are shown as a negative) Cross-border and local business of non-uk offices covering loans, advances and repos; lending under ECGD (1) bank guarantee; certificates of deposit, commercial paper and bills issued by non-residents; net holdings of shares and other securities issues by nonresidents (net short positions are shown as a negative) Instrument Coverage: Liabilities Country detail Cross-border deposits and repos Data collected for 232 countries plus separate identification of international organisations. Of these, 141 countries are separately identified in Table C3.2 Non-UK offices' local currency deposits from local residents Data collected for 232 countries plus separate identification of international organisations. Of these, 141 countries are separately identified in Table C4.1 Sector detail Maturity detail Currency detail Flows data Press releases Additional data A sector breakdown is only published for total nonresident business split by currency in Table C3.3. This is split between central monetary institutions (CMIs), other non-resident banks and other non-residents Not available A currency breakdown is only published for total nonresident business split by sector in Table C3.3. This is split between sterling, US dollars, euro, Swiss francs, Japanese yen and other currencies Flows data are available for regional totals, and a currency and nationality split of claims on nonresidents, as shown in Table C3.1. These flows are adjusted to exclude the effects of foreign currency movements over the quarter Titled External business of banks operating in the UK and is available via Data can also be broken into subsets showing the nationality of reporting banks. A limited amount of this type of information, with regards to cross-border claims, is shown in Table C3.1 A sector breakdown is available for all cross-border claims plus local claims in foreign currency. This is split between banks, public sector and other nonresidents for each country, as shown in Table C4.1 A maturity breakdown is available for all cross-border claims plus local claims business in foreign currency, splitting non-dealing portfolio items into four maturity buckets, for each country as shown in Table C4.1 Not available Not published. As there is no currency breakdown, the data cannot be adjusted to take out the effects of foreign currency movements, therefore flows can simply be calculated by taking the difference in the levels data Titled Consolidated worldwide external claims of UKowned banks and is available via Data on risk transfers, unused credit commitments and claims under contracts in financial derivatives are also available in Table C4.1. Box 2 explores the different measures used within the consolidated dataset (1) Export Credits Guarantee Department 8

5 Consolidated data The level of foreign claims (see Box 2 for definition) of BIS-reporting countries 4 on a consolidated basis stood at $12,473 billion at end-june German-owned banks accounted for the largest share of these claims with 2. The UK had the second largest share with 13% ($1,569 billion) of the total foreign claims, followed closely by Switzerland, France and Japan, accounting for 12%, and respectively (Chart E) 5. Chart E - Market share of consolidated foreign claims of BIS reporting banks Germany United Kingdom Swit zerland France Japan S o urc e : B a nk fo r Inte rna tio na l S e ttle m e nts (B IS ). Analysis by region While developed countries account for the largest share of UK-owned banks foreign claims, they are not as dominant as in the locational data, only accounting for 7 of the total (28% European and 43% Other) at end- June Offshore Centres accounted for more than 15% of total foreign claims and developing countries accounted for. The latter is slightly lower than its true level as a result of suppressions due to confidentiality, which have been placed into unallocated claims. Adding unallocated claims to developing countries gives a better idea of UK-owned banks true foreign claims on developing countries, resulting in a 13% share (Chart F). Of the identified claims on developing countries, 47% were to countries in Asia & Pacific while Latin America & the Caribbean accounted for 26%, Africa & the Middle East 19% and Developing Europe 8%. Chart F - UK-owned banks consolidated foreign claims by region end-june % 9.7% 1.9% 2.9% 27.6% 25% 2 15% 5% countries. The share of foreign claims on developing countries has remained stable over the last ten years. Table 3 - Breakdowns of UK-owned banks foreign claims Q2 % share $ billions A -International claims (a) % By Sector Banks % Public sector % Other non-residents % B -Local currency claims on local residents % Total Foreign Claims (A + B) 866 1,069 1,152 1,354 1,569 Local currency liabilities to local residents Net risk exposures (a) comprises cross-border claims plus local claims in foreign currency Source: Bankof England. Table 3 shows the increased importance of local currency claims on local residents within total foreign claims of UK-owned banks, increasing from 47% of total foreign claims at end-december 1999 to 54% at end-june 2003, reflecting increased exposures from UK-owned banks offices overseas. Local currency liabilities have also increased over the same period, although not as quickly, resulting in net local currency claims on local residents increasing from $88 billion at end-december 1999 to $279 billion at end-june Analysis by sector The sectoral allocation of consolidated claims is very different from that of the locational external assets, with non-banks accounting for 59% of international claims (16% public sector and 43% other non-residents) and banks only 41%, partly reflecting the netting of intragroup transactions within the consolidated data. This sector split has grown over the past ten years, with a 13% switch from claims on banks to claims on non-banks over the period. At present there is no sectoral breakdown available for local currency business (see Box 2). Analysis of risk transfer The consolidated dataset also includes information on risk transfers, which provides information on where the ultimate risk of a claim lies. Chart G shows that risks are being transferred from developing countries and Offshore Centres into developed countries, effectively reducing the risk profile of UK-owned banks claims. Chart G - Risk transfers by region end-june 2003 $ billions 250 Developed Europe Offshore Centres International Organisations 42.5% Other Developed Countries Total Developing Countries Unallocated This regional breakdown has changed slightly over the last ten years, which have seen a gradual 8% switch from claims on Offshore Centres towards claims on developed 4 BIS reporting countries for consolidated data are the same as those for locational data, excluding: Bahamas, Bahrain, Bermuda, Cayman Islands, Guernsey, Isle of Man, Jersey, Netherlands Antilles. 5 Consolidated BIS data for developed countries is only available from 1999 onwards. Also, although end-september 2003 data are available for the UK, end-june data has been used to allow comparison to BIS data which is always published two months in arrears to UK data. 9 Total Developed Countries Offshore Centres Total Developing Countries Inward risk transfers Outward risk transfers Net inward risk transfers Net inward risk transfers into developed countries are greater than the sum of net risk transfers out of developing countries and offshore centres. This is due to claims on the UK not being included in foreign claims, but being included within risk transfers when they are transferred out of the UK and into other (in this case developed) countries. Box 2 provides a more detailed explanation of risk transfers and net risk exposure

6 Box 2: Consolidated data definitions The information reported by UK-owned banks within the consolidated dataset allows for more varied analysis of exposures than is possible with the locational data. This includes a greater sector breakdown, a maturity analysis, local currency business with local residents, risk transfers and unused external commitments. However, given the reporting burden this creates, there is no currency breakdown available, and as such foreign currency adjusted flows cannot be accurately calculated. This box examines the key measures used in analysing the consolidated dataset, providing some definitional explanations and examples where appropriate. Total foreign claims This is the sum of international claims and local currency claims on local residents, thus capturing the greatest possible on-balance sheet external exposure, on an immediate counterparty basis, of UK-owned banks. This is the headline series used by the BIS and Bank of England for consolidated data. International claims This comprises cross-border claims of UK and non-uk offices of UK-owned banks (e.g. the London office of a UK-owned bank lending to a bank in France or a Paris office of a UK-owned bank lending to company in Germany), plus non-uk offices foreign currency claims on local residents (e.g. a branch of a UK bank in Germany lending to a German resident in sterling). On Table C4.1 these are described as cross-border claims plus local claims in foreign currency. This is the main measure within the consolidated dataset and therefore has the greatest additional information. International claims are broken down by sector, a limited asset type and by maturity. There is also information on risk transfers of international claims (see below). Local currency positions with local residents This covers non-uk offices of UK-owned banks claims on and liabilities to local residents in the local currency (e.g. a branch of a UK bank in Germany lending to a German resident in euros). This is the only part of the consolidated data where liabilities information are available. Net Risk Exposure There are various ways to measure the ultimate exposure being taken by UK-owned banks dependant upon your views of risk exposure. While Table C4.1 provides one measure net risk exposure, the consolidated dataset provides the relevant building blocks to create any other form of ultimate exposure. The measure used in Table C4.1 is calculated as follows: International claims plus Local currency claims on local residents minus Local currency liabilities to local residents minus Outward risk transfers plus Inward risk transfers minus Portfolio investments Risk transfers Risk transfers try to measure where the ultimate risk of a loan lies, i.e. should the immediate counterpart default on a claim is there another entity in another country which must legally repay the claim on its behalf? Risk transfers within the same country are not recorded. The only instances in which a risk transfer is measured is where a formal guarantee is in place, either by default, where the borrower is a branch of a bank or company in another country, or where a resident of another country undertakes an unconditional and irrevocable guarantee to repay the claim. The simple example below shows a UK-owned bank lending to a Russian branch of a German-owned bank. The immediate risk is with Russia and therefore will be classified under Russia within International claims. However, as this is a branch, by default it has a parental guarantee from Germany. Therefore, there will be an outward risk transfer from Russia and an inward risk transfer to Germany, as this is where the ultimate risk lies. UK-owned Bank Im m ediate Risk Branch of a German-owned bank in R ussia Parental Guarantee U ltim ate R isk Parent Bank in G erm any Foreign claims on the UK are not included within the consolidated dataset. However, where the claims are risk transferred in or out of the UK from/to another country, they are captured and are included within the risk transfers of the relevant country. Total inward and outward risk transfers from/to the UK are included within the footnotes to Table C