International Credit

2011 Sovereign Credit Capacity Update

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brodyaga.com photo
The waters along the resort town of Protaras in Cyprus. The Mediterranean nation has the highest amount of loans outstanding to GDP.

Global domestic credit as a percent of GDP declined slightly in 2011, according to data from the World Bank.  Some countries have room for expansion while others are nearing the end of the line.

In recent years, the industrialized world's appetite for credit has boosted economies but at the same time created mountains of debt primarily in the form of bank loans and bond purchases.  This rapid expansion of credit has inflated many country's financial sectors and created a dependency on banks and the banking system never before seen.  Meanwhile, in many undeveloped or developing areas of the world the banking system and credit markets are underutilized and not yet able to fully support economic growth. 

Data from the World Bank that measures domestic credit, or bank loans outstanding, to the private sector as a percent of GDP provides the clearest picture yet of the amount of credit outstanding in the world today and more importantly which countries have room for expansion and which countries may be nearing their limit.  In 2011, the average amount of bank loans outstanding as a percent of GDP for 151 countries was 129.58%, according to World Bank data.

The Republic of Cyprus, an island nation in the Meditteranean sea that has close cultural ties to nearby Greece, has the highest amount of bank loans per GDP of any nation in the world at 298.40 (see chart).  The country's 2011 GDP was $24.7 billion, which means the outstanding loans on the island are around $73.7 billion.  The war-torn nation of Afghanistan had the lowest percent with bank loans outstanding of only 4.57 of a $20.34 billion GDP.

In June, Cyprus became the fifth euro zone country to seek emergency funding asking for an amount of $13 billion -- over half the size of its economy.  The country's finance minister, Vassos Shiarly, told Reuters on June 25th that the country needed to plug a $2.34 billion regulatory capital shortfall in its second largest lender, which is Marfin Popular Bank, according to the website Cyprus.com.

Cyprus and Afghanistan represent opposite ends of the credit capacity spectrum, according to the World Bank data for 151 countries.  Cyprus is an example of a nation that has relied heavily on credit to fuel an economy that has skyrocketed 134% since 2002.  Cyprus became a member of the European Union (EU) in 2004 and then adopted the euro as its official currency in 2008.  Cyprus has a Ba3 credit rating from Moody's and BB rating from Standard & Poors. 

Another EU member with high bank loans as a percent of GDP is the Scandinavian country of Denmark, which comes in second at 208.99%.  Like Cyprus, Denmark's GDP growth has mirrored its expansion of credit with its economy more than doubling since 2001 to the current level of $332.7 billion.  In 2002, Denmark's bank loans outstanding as a percent of GDP was 145.5% but rose as the economy rose indicating its growth was fueled by credit.  Denmark has a broad-reaching welfare system that provides tax-funded healthcare and unemployment insurance. 

Ireland, Spain and Portugal, three more EU countries that have received bailout funds, round out the top 10.  All three countries have been key players in the ongoing European Sovereign Debt crisis and have had to rely on massive assistance from the EU.  Ireland has recovered somewhat as its capital market, the Irish Stock Exchange, had the highest market capitalization increases of any exchange in the developed world in 2011.  Spain, a much larger economy, was teetering on the brink of insolvency until June when the EU stepped in with $100 billion in loans to support its struggling banks.

In a troubling sign, the United States of America, the world's largest economy and largest consumer of global goods, has the 7th highest amount of bank loans outstanding as a % of GDP at 193.03%, which means less room available for credit expansion.  The U.S. economy has steadily climbed since 1960 using a strong industrial base, technological innovation, a stable banking system and the largest and most developed capital market in the world. 

But since 2002, as the World Bank data shows, the U.S. began to rely more and more on credit to achieve growth as the percent of outstanding loans jumped from 167.6% of GDP in 2002 to 183.3% in 2003.  Domestic credit climbed all the way to 213.9% in 2007, the year before the financial crisis.

The German finance minister Wolfgang Schauble accurately described what has happening in the U.S. in an interview with Der Spiegel on November 10, 2010 when he said, "The USA lived off credit for too long, inflated its financial sector massively and neglected its industrial base."  This massive expansion of the world's largest financial sector was facilitated by a prolonged period of near-zero interest rates that expanded credit as well as the national debt which now stands at $16 trillion.
 

 11. Luxembourg 169.9 84. Oman 39.0
 12. Japan 169.7 85. Qatar 38.5
 13. Sweden 136.1 86. Sao Tome and Principe 38.3
 14. Malta 133.7 87. Kenya 38.2
 15. Thailand 131.9 88. Kosovo 38.0
 16. Australia 128.2 89. Kazakhstan 36.3
 17. China 127.4 90. Moldova 33.6
 18. Italy 122.5 91. Armenia 33.1
 19. Austria 119.6 92. Georgia 32.8
 20. Greece 118.2 93. Ecuador 32.4
 21. France 116.2 94. Nicaragua 32.2
 22. Malaysia 115.6 95. Philippines 31.8
 23. Singapore 112.6 96. Indonesia 31.7
 24. St. Lucia 112.2 97. Egypt 31.3
 25. Vietnam 111.6 98. Sri Lanka 30.6
 26. Germany 105.4 99. Togo 29.8
 27. Iceland 103.1 100. Senegal 28.9
 28. South Korea 100.5 101. Papua New Guinea 28.5
 29. Finland 95.6 102. Cambodia 28.2
 30. Belgium 93.0 103. Seychelles 27.3
 31. Panama 91.8 104. Swaziland 27.1
 32. Slovenia 91.4 105. Mauritania 26.9
 33. Mauritius 90.9 106. Peru 26.4
 34. Chile 89.3 107. Mexico 26.1
 35. Bahamas 85.4 108. Jamaica 25.6
 36. Lebanon 85.2 109. Benin 24.5
 37. Estonia 84.6 110. Botswana 23.9
 38. Latvia 82.7 111. Mozambique 23.9
 39. Grenada 81.0 112. Solomon Islands 23.5
 40. Antigua and Barbuda 77.2 113. Guatemala 23.4
 41. Tunisia 76.4 114. Dominican Republic 22.8
 42. Fiji 74.7 115. Nigeria 21.9
 43. Jordan 73.5 116. Liberia 21.8
 44. Croatia 72.2 117. Angola 21.7
 45. Bulgaria 72.1 118. Burundi 21.1
 46. Morocco 70.6 119. Mali 21.0
 47. South Africa 68.9 120. Venezuela 20.4
 48. St. Kitts and Nevis 68.9 121. Burkina Faso 19.8
 49. Vanuatu 67.0 122. Micronesia 19.1
 50. Hungary 65.0 123. Pakistan 18.3
 51. Brazil 61.4 124. Cote d'Ivoire 18.1
 52. Dominica 57.8 125. Azerbaijan 17.9
 53. Macao SAR, China 56.8 126. Uganda 17.9
 54. Kuwait 56.2 127. Tanzania 17.9
 55. Ukraine 55.9 128. Comoros 17.8
 56. Czech Republic 55.8 129. Argentina 16.6
 57. Montenegro 55.2 130. Malawi 15.8
 58. Poland 54.9 131. Lesotho 15.3
 59. Bosnia and Herzegovina 54.7 132. Ghana 15.2
 60. Maldives 53.7 133. Haiti 15.0
 61. Lithuania 53.6 134. Cameroon 14.8
 62. Mongolia 53.2 135. Algeria 14.7
 63. Nepal 52.7 136. Niger 14.2
 64. St. Vincent and the Grenadines 52.1 137. Gambia 13.2
 65. Bhutan 51.3 138. Sudan 13.2
 66. India 50.6 139. Timor-Leste 12.6
 67. Turkey 50.1 140. Zambia 12.3
 68. Namibia 49.7 141. Guinea-Bissau 11.7
 69. Bangladesh 49.4 142. Madagascar 10.9
 70. Honduras 49.2 143. Sierra-Leone 10.2
 71. Serbia 49.1 144. Central African Republic 10.0
 72. Samoa 47.6 145. Gabon 9.2
 73. Costa Rica 47.4 146. Equatorial Guinea 7.5
 74. Macedonia 46.3 147. Congo 6.6
 75. Russia 45.9 148. Dem. Rep. of the Congo 6.4
 76. Colombia 45.3 149. Chad 5.9
 77. Romania 45.2 150. Yemen 4.9
 78. Belarus 42.0 151. Afghanistan 4.6
 79. Paraguay 41.1  World average 129.6
 80. Bolivia 40.1   
 81. Saudi Arabia 39.7   
 82. El Salvador 39.6   
 83. Albania 39.3