Global Commercial Banking Outlook - Q1 2014
The global commercial banking sector should continue to expand in 2014, following a 2013 in which several major risks failed to derail credit expansion. While there remain significant headline risks in 2014, ranging from renewed rancour in Washington to a collapse in Chinese growth, we continue to see signs that global growth is picking up, and we expect commercial bank expansion to grow with it. We forecast a stronger global economy in 2014 than in 2013, with our global real GDP growth estimate rising to 3.1% from 2.6%, respectively. Accordingly, confidence by both lenders and borrowers should gradually increase: of the 70 banking sectors that we cover, we forecast loans-to-GDP - as a proxy for leverage in the total economy - to rise in 42 countries between 2013 and 2015.
There are major obstacles along the way, not least the fragility of the eurozone banking sector, an increasingly onerous global capital and regulatory regime, rising US interest rates, and risks to the funding models of key emerging markets. Our regional emerging market analysis this quarter focuses on the sustainability of loan growth in key markets, with a focus on potential growth areas (particularly in the frontier markets of Latin America and Africa), and markets that are vulnerable to a pullback in foreign financing, including Turkey. We also look at the degree to which key emerging market banking sectors have overextended the provision of credit relative to underlying economic growth, and which are only in the early stages of a long-term credit growth cycle.
United States And Eurozone: We believe that the US commercial banking sector will continue to experience relatively robust asset growth over the next several years, and that extending credit to the economy will increasingly be the driving force behind this growth. In addition to stronger bank balance sheets facilitating greater credit growth over the next few quarters, we believe consumers and businesses are also relatively well-positioned, having experienced fairly significant private sector deleveraging in the past five years. Meanwhile, the eurozone banking sector faces a multitude of headwinds. In particular, the impact of balance sheet deleveraging on industry growth will be further compounded by regulatory demands for additional capital, as well as a spate of reforms aimed at safeguarding financial stability and progress towards banking union. The fractured credit transmission channel will continue to undermine broader economic growth, which is reflected in our medium-term forecasts.
|Emerging Markets Still Vulnerable To Capital Flight|
|Excess Credit Growth & Current Account Balances|