European banks have always been big or even dominant lenders in emerging-market economies. But now, weathering a new European recession, subject to stricter capital rules, and spooked by uncertainty, they’ve been forced to deleverage. They’re getting rid of assets at a staggering pace and particularly in emerging markets, find BBVA economists Alicia Garcia Herrero and Fielding Chen (pdf). This is giving US, Japanese, Australian, and even UK banks a chance to get into markets where they used to be only minor players. Though US banks, like European ones, are having to somewhat limit their expensive foreign operations because of new regulation, they’re still taking advantage of new opportunities in emerging markets.
But Herrero and Chen’s most interesting takeaway of all is that local, emerging-market banks are starting to fill the gaps too, competing with their advanced market peers to finance their own economies. The increase in financing suggests that banking systems in a lot of emerging markets are growing more complex and more important. Herrero and Chen write (emphasis ours):
The clearest case is Asia where Euro-area banks have massively lost market share. The reason, however, is not only related to their retrenching but also to the surge in lending from Asian banks. US and UK banks are also coming back but in a much more moderate way than Asian ones. On the opposite side we have Emerging Europe where Euro-area banks, notwithstanding their retrenchment, have lost a relatively small market share. In Latin America and the Middle East, Euro-area banks have basically maintained the level of lending but have lost a big part of their market share. US banks have substantially increased their presence in Latin America while UK banks have become more relevant in the Middle East.
These figures are particularly staggering in data on syndicated loans, which can be traded by institutional investors and banks as corporate bonds. Europe was responsible for nearly 90% of loans to emerging Europe in 2008, but that was down to 60% by 2012. In the Middle East and North Africa, they went from 60% in 2005 to 25% in 2012. Middle Eastern banks have picked up most of the slack: their share of the syndicated loan market tripled between 2005 and 2012, to 60%.
Meanwhile, in Asia, European banks’ market share fell by 25 percentage points in that same period. At the same time, Asian banks’ market share rose by more than 20 percentage points, from 42.8% in 2005 to 65% in 2012.