Effingham Talk

The Institute of International
Finance said net private capital inflows to emerging economies
will fall 18 percent to $746 billion this year as the European
debt crisis erodes the ability of banks to provide funding.

The flow of investment in emerging markets was an estimated
$910 billion in 2011 and is projected to rise to $893 billion in
2013, the Washington-based global lobby group for financial
companies said in a statement today.

Bank lending showed the largest decline and the IIF
estimates net flows from banks to emerging markets will be
“quite weak” for the whole year, Charles Dallara, the IIF’s
managing director, said at a meeting in Zurich today.

“The crisis is contributing to bank deleveraging, which is
damaging the prospects for both growth in Europe and for capital
flows to emerging markets,” he said.

Funding conditions deteriorated the most in emerging
European countries, including Hungary and the Czech Republic,
according to the institute. In a survey of banks in those
countries, 63 percent said credit standards had tightened
because of financial strains in the euro area.

The European Banking Authority’s new capital rules
requiring euro-area banks to achieve a 9 percent core Tier 1
capital ratio by the middle of this year is triggering asset
reductions.

“In an environment where raising new capital was extremely
expensive, euro-area banks responded by accelerating asset
shedding, especially in foreign markets,” IIF Chief Economist
Philip Suttle said.

The IIF said it expects net commercial bank flows to
emerging markets to drop to $38 billion this year from $137
billion in 2011.

To contact the reporter on this story:
Carolyn Bandel in Zurich at
cbandel@bloomberg.net

To contact the editor responsible for this story:
Frank Connelly at
fconnelly@bloomberg.net

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