Actuarial news and views from Cape Town and beyond

Private sector debt has jumped since financial crisis, particularly in Asia

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(On behalf of Clyde Pillay)

This article appeared on the Financial Times UK website last week.

According to a study by JPMorgan, private sector debt in emerging markets has increased by 33% of GDP since the global financial crisis and this increases the risk of crises in future. This is supported further by research the results of the IMF’s research that indicates increases of 5% or more in the ratio of credit to GDP in a single year increases the risk of an eventual crisis.

As expected, China has the highest level of private non-financial sector debt amounting to $14.97tn and the country has the highest growth in the credit to GDP ratio of the 20 emerging market economies analysed by JPMorgan. South Africa, Argentina and Hungary are the only 3 countries out of the 20 to experience a reduction in this ratio.

There is some good news: the study points out that only around 8% of debt is foreign-currency denominated. This lessens the impact of weakening emerging market currencies (against the dollar) on repayment values.

Note that the term ‘private sector debt’ used in the article includes the following:

  • domestic bank credit
  • cross-border loans extended to the non-bank private sector and
  • debt securities issued by non-financial companies

Shadow banking has been excluded from the measure.

What is the ‘Shadow Banking System’?

Financial intermediaries involved in creation of credit across the global financial system, but whose members are not subject to regulatory oversight.

Or…unregulated activities by regulated institutions.

The Shadow banking system has been able to dodge regulation because it did not accept traditional bank deposits. Therefore, higher risks were taken without higher capital requirements.


Unregulated intermediaries

  • hedge funds
  • unlisted derivatives and other unlisted instruments

Unregulated activities by regulated institutions

  • credit default swaps



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