EMs weather the global banking storm

Spill-overs to EMs from the turmoil in the global banking system have been limited. There don’t appear to be signs of strain in EM banks themselves, outflows of capital have been small and, in general, EM policymakers have not felt compelled to respond to the crisis, instead remaining focussed on combatting domestic inflation. But the big unknown is whether banking problems flare up elsewhere – as the events of the past month show, only one bank needs to fail to cause wider turmoil in a country’s financial sector. On the liabilities side of balance sheets, loan-to-deposit ratios are generally low but some EMs including Czechia, Turkey and Hungary are worryingly reliant on large amounts of banking sector inflows to finance current account deficits. On the asset side, most EM banks appear well placed to weather a period of higher NPLs from a period of subdued economic growth. But vulnerabilities lurk in some large banks, particularly in India, Poland, Israel, Chile and Korea.

EM Drop-In (6th Apr.): Our latest EM online briefing is all about the risks around the recent bank turmoil, including potential economic spill-overs and the state of EM bank balance sheets. Register now.