Banking in Developing Countries in the 1990s
During the 1990s commercial bank deposits and capital rose relative to GDP in the major developing countries. This rise largely reflected the dramatic fall in inflation of the 1990s and financial liberalization. But much of this growth in banks...
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| Format: | Policy Research Working Paper |
| Language: | English |
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World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2003/11/3060464/banking-developing-countries-1990s http://hdl.handle.net/10986/17905 |
| Summary: | During the 1990s commercial bank
deposits and capital rose relative to GDP in the major
developing countries. This rise largely reflected the
dramatic fall in inflation of the 1990s and financial
liberalization. But much of this growth in banks'
loanable funds was absorbed by increased net holdings of
central bank debt and of government debt. Much of the rise
in government debt reflected post-crisis restructurings,
notably in Brazil, Indonesia, and Mexico, but rising
deficits also played a role. Bank intermediation between
depositors and private sector borrowers remained limited in
many countries despite financial liberalization. The
post-crisis restructurings raise two important issues: the
poor performance of loans that was revealed by the crises
and the future crowding-out that will result from the
spreading-out of the cost of the crisis over time and the
inability to retire the restructuring-related debt. The
absorption of deposits in nonprivate sector credit, the
growth of offshore finance of the private sector, and the
poor performance of loans suggest a weakening of the link
between the traditional measure of financial depth, M2/GDP,
and economic growth and development. The changes in the
1990s also raise issues such as the potential for future
deposit growth, the riskiness of bank portfolios,
banks' increased dependence on government solvency, the
access to credit for firms unable to access global markets,
the foreign exchange exposure of countries, and the
implications of the ongoing changes in regulation and supervision. |
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