## _wp0954

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---

### Key findings and conclusions
- Rapid credit growth in CESE in recent years has been largely attributable to expansion activities of international banking groups and substantial funding from abroad, increasing the region’s vulnerability to financial risks.
- Host countries in CESE have become more at risk from a sudden withdrawal of short-term foreign claims, while home countries have significant aggregate “captive” exposures to the region as a whole.
- Increasing integration by CESE countries into international financial markets and a high share of foreign ownership in their banking systems may increase susceptibility to cross-border contagion and feedback effects on home countries.
- Existing international databases are inadequate for cross-border surveillance and policymaking due to:
  - Incompleteness of reporting countries and banks.
  - Inconsistencies in the availability of like data series across countries.
  - Differences in the definition and collection of data.
- A concerted effort is required at the international level to improve data collection for surveillance and policymaking.

### Risks, vulnerability channels, and context
- The tightness in global liquidity conditions and sharp revisions in the pricing of risk have increased the possibility of a sudden stop or reversal in foreign-based lending to some emerging market countries.
- Short-term direct cross-border claims (typically in foreign currency) by foreign banks represent an important source of liquidity risk to the local financial system.
- Concentration of borrowing from a handful of creditor countries increases vulnerability to idiosyncratic shocks from those countries and to business decisions by individual parent banks.
- Even well-capitalized foreign parents are not immune to global shocks; home-country support may be constrained by simultaneity of stress across multiple host markets.
- The analysis does not assess the probability of shocks or countries’ capacities to absorb shocks; vulnerability depends on macroeconomic fundamentals, soundness of financial systems, and contingency planning.

### Data and methodology — scope and objectives
- Objective: develop a comprehensive and consistent dataset to analyze risks associated with bank credit flows in the CESE region.
- Approach: combine BIS Consolidated Banking Statistics (claims data of foreign banks) with IMF IFS credit data to construct a dataset for private bank claims on individual CESE countries.
- Sample grouping: the 13 CESE countries are grouped into sub-regions:
  - Baltics: Estonia, Latvia, and Lithuania.
  - CEE: Czech Republic, Hungary, Poland, Slovak Republic.
  - SEE: Bulgaria, Croatia, Romania, Ukraine.
  - OEE: Russia and Turkey.
- The paper provides a simple quantification of:
  - The possible maximum size of a funding shock on host countries.
  - The maximum possible losses to home country banks from a regional contagion.
- The analysis complements related work that develops indices of exposure to regional contagion and describes propagation channels of regional shocks.

### Derivation and composition of bank claims (methodological details)
- Definition: “foreign bank claims” are the cross-border claims of foreign banks and the local claims of LAFBs in all currencies.
- Four components of bank claims on a particular country:
  - Direct cross-border claims of foreign banks on the host country (“A”).
  - Local claims of LAFBs in foreign currency (“B”).
  - Local claims of LAFBs in local currency (“C”).
  - Local claims of local banks (“E”).
- Focus: composition of bank claims on the nonbank private sector (shares held by local banks, LAFBs and banks located in the home country).
- Data basis and assumptions:
  - Use BIS data on ultimate risk basis where available.
  - Apply explicit assumptions to BIS immediate borrower basis data to bridge gaps in ultimate risk data (see Appendix II for calculations and assumptions).
  - Where currency composition of local claims of local banks is unavailable, cannot differentiate between foreign currency and local currency loans for that category.
- Maturity decomposition:
  - Short-term: maturity of one year or less — used to quantify host countries’ vulnerability to sudden withdrawal of funding.
  - Longer-term: maturity greater than one year — used to estimate foreign banks’ exposures to credit risk and potential deterioration of “captive” claims following liquidity shocks.
- Claims on the banking sector and funding sources are examined using BIS data (including inter-bank lending vs. domestic deposits or capital markets).

### Box 1 — data construction steps (summary)
- BIS ultimate risk data available for:
  - (i) total foreign claims;
  - (ii) cross-border claims of foreign banks;
  - (iii) all local claims of LAFBs.
- BIS immediate borrower basis available for: local claims of LAFBs in local currency.
- Step 1:
  - Assume local claims of LAFBs in local currency (immediate borrower basis) = local claims of LAFBs on ultimate risk basis.
  - Derive local claims of LAFBs in foreign currency = All local claims of LAFBs – Local claims of LAFBs in local currency.
- Step 2:
  - Derive local claims of local banks on the nonbank private sector = IFS series (claims of all depository institutions on the nonbank private sector) less the BIS data on all claims of LAFBs.

### Selection of home and host countries — concentration statistics (as at End-2007)
- CESE-13 account for around 90 percent of region’s total foreign exposures to BIS-reporting banks.
- Some 75 percent of exposures are concentrated in five host countries:
  - Poland, 15 percent;
  - Russia, 14 percent;
  - the Czech Republic, 11 percent;
  - Turkey, 10 percent; and
  - Hungary, 9 percent.
- Foreign banks have smallest exposures to Bulgaria, Ukraine, and the Baltic countries, each accounting for less than 3 percent of total foreign claims on the region.
- Austria is the most important creditor country for CESE, accounting for almost 19 percent of foreign bank funding to the region, followed by Germany and Italy.
- The 13 countries in the sample account for 96 percent of CESE liabilities to BIS-reporting banks.
- Table 1 host-country shares (percent of total foreign claims on the region), selected values:
  - Poland 15.24
  - Russia 13.91
  - Czech Republic 11.49
  - Turkey 9.9
  - Hungary 9.29
  - Romania 7.46
  - Croatia 6.21
  - Slovak Republic 5.19
  - Ukraine 2.92
  - Bulgaria 2.27
  - Estonia 2.11
  - Latvia 2.01
  - Lithuania 1.86
  - Others 10.8
- Table 2 home-country shares (percent of home country’s total foreign claims; percent of total foreign claims on the region), selected entries:
  - Greece 76.7 / 21.9 / 4.9
  - Austria 49.37 / 0.0 / 18.6
  - Italy 17.5 / 9.1 / 13.6
  - Sweden 12.4 / 18.6 / 6.0
  - Belgium 9.0 / 26.3 / 8.5
  - Germany 4.8 / 6.0 / 14.2
  - France 4.0 / 5.3 / 9.8
  - United States 3.9 / 0.1 / 4.5
  - Netherlands 3.6 / 11.0 / 6.1
  - Switzerland 2.4 / 14.5 / 4.3
  - United Kingdom 1.6 / 2.3 / 3.5
  - Japan 1.2 / 0.1 / 1.8
  - Others ---- / ---- / 4.1

### Stylized facts: changes in claims, composition, and maturities (selected)
- Maturity-structure shifts (Longer-term foreign bank claims in percent of total foreign bank claims; Mar-2005 -> Jun-2007 -> Dec-2007):
  - Bulgaria: 49 -> 60 -> 61 (↑↑↑)
  - Croatia: 62 -> 64 -> 70 (↑↑↑)
  - Czech Republic: 66 -> 63 -> 61 (↓↓↓)
  - Estonia: 69 -> 74 -> 80 (↑↑↑)
  - Hungary: 73 -> 71 -> 71 (↓→↓)
  - Latvia: 70 -> 48 -> 68 (↓↑↓)
  - Lithuania: 71 -> 75 -> 78 (↑↑↑)
  - Poland: 76 -> 74 -> 75 (↓↑↓)
  - Romania: 52 -> 41 -> 45 (↓↑↓)
  - Russia: 55 -> 50 -> 50 (↓↓↓)
  - Slovak Republic: 58 -> 63 -> 58 (↑↓→)
  - Turkey: 43 -> 57 -> 54 (↑↓↑)
  - Ukraine: 56 -> 63 -> 48 (↑↓↓)
- Notes:
  - Maturity data only available on immediate borrower basis; longer-term claims defined as maturities of more than a year.
  - Romania and Ukraine have the biggest proportion of short-term foreign claims (more than half); Estonia and Lithuania have the smallest short-term shares (20 and 22 percent, respectively).
- Sectoral shifts (Mar-2005–Dec-2007):
  - Foreign banks’ claims on the public sector fell as a percentage of total claims across most CESE-13 countries (exceptions: Czech Republic increase; Estonia and Slovak Republic unchanged).
  - Highest foreign bank claims on public sector: Poland and Slovak Republic at 28 percent of total claims.
  - Lowest foreign bank claims on public sector: Estonia 3 percent; Latvia and Russia 6 percent.
  - Proportion of claims on private sector increased across most countries; within private sector, claims shifted toward the nonbank private sector.

### Local and foreign banks’ claims on the private sector (CESE-13)
- Depth of financial intermediation (total bank credit to nonbank private sector in percent of GDP):
  - Baltics: around 120 percent;
  - CEE: about 60 percent;
  - SEE: 70 percent;
  - Other Emerging Europe (OEE): just over 40 percent.
- Country examples:
  - Estonia 162 percent of GDP;
  - Latvia 126 percent of GDP;
  - Croatia 119 percent of GDP;
  - Russia around 46 percent of GDP;
  - Turkey 38 percent of GDP.
- Reliance on foreign bank funding:
  - Baltics: foreign bank share of total bank claims increased from about 20 percent to almost 70 percent of total bank claims; foreign claims rose from 10 percent to 80 percent of GDP between March 2005–December 2007.
  - Latvia: foreign bank claims rose from 15 percent of total bank claims (9 percent of GDP) in 2005 to 73 percent (92 percent of GDP) as at end-2007.
  - Czech Republic: foreign banks ~80 percent of total bank claims.
  - Russia and Turkey: domestic banks continue to dominate (> two-thirds of total claims on nonbank private sector).
- Currency composition:
  - Foreign bank claims increasingly denominated in foreign currency, especially in SEE and Baltic countries.
  - Larger portion of aggregate foreign bank claims on CEE remains in local currency.
  - Exceptions with strong local-currency LAFB lending growth up to end-2007: Czech Republic, Lithuania, Slovak Republic, and to a lesser extent Romania.
- Nonparent inter-bank funding:
  - Varies from 10–30 percent of GDP on average across CESE-13 banking sectors.
  - Highest in Estonia (42 percent of GDP) and Latvia (34 percent of GDP).
  - Lowest in Russia and Turkey (less than 5 percent of GDP).

### Quantification of home and host “exposures” — Short-term exposures (definitions and aggregates)
- Short term defined as one year or less.
- Aggregate short-term claims of foreign banks on CESE-13’s nonbank private sector amount to 9 percent of CESE-13 GDP.
- Majority share of this funding is in the form of direct cross-border loans: 4 percent of the region’s GDP.
- Sub-regional short-term patterns:
  - Baltics: short-term claims on the Baltic nonbank private sector amount to almost 20 percent of Baltic GDP, almost half as direct cross-border loans.
    - Since mid-2007, withdrawal of short-term funding occurred: Latvia short-term funding fell from 45 percent of GDP to 30 percent of GDP.
  - SEE: short-term funding accounts for more than 17 percent of sub-region’s total GDP; slightly more than 20 percent of GDP for Bulgaria, Croatia, and Romania.
  - CEE: short-term funding largely from LAFBs in local currency: almost 8 percent of host GDP; cross-border funding around 4 percent of GDP.
  - OEE (Russia and Turkey): total short-term liabilities of the nonbank private sector amount to only 5 percent of GDP; direct cross-border borrowing ~two-thirds of this amount.
- Inter-bank short-term exposure:
  - Baltic and SEE banking systems most reliant on inter-bank liquidity: nonparent foreign bank funding ~7 percent of Baltic GDP.
  - Latvia: short-term inter-bank claims fell to 11 percent of its GDP from more than 20 percent between mid- and end-2007.
- Home-country short-term creditor importance:
  - Austria’s outstanding short-term claims on the region amount to 1.7 percent of aggregate CESE-13 GDP.
  - Germany and Italy each have short-term claims amounting to 1.1 percent of the region’s GDP.
  - Austria’s short-term claims amount to almost 15 percent of its own GDP.
  - Belgium and Greece: total short-term claims of 5.6 and 5.1 percent of their own GDP, respectively.
- Sweden:
  - Main short-term lender to the Baltics: loans just over 16 percent of Baltic GDP (largest proportion cross-border).
  - Baltics are most important short-term debtor group for Sweden, accounting for 3.1 percent of Sweden’s GDP.
  - Sweden’s short-term (nonparent) inter-bank lending to the Baltics: 5.8 percent of Baltic GDP, or 1.1 percent of Sweden’s own GDP.
  - Sweden’s claims on the Latvian and Estonian banking sectors: around 8 percent of host GDP.
- Host-country level short-term highlights:
  - Austrian short-term lending to Croatia: 8.4 percent of Croatian GDP.
  - Austrian short-term lending to Romania: 3.4 percent of Romania’s GDP.
  - Austrian banks’ short-term lending to the Slovak Republic: equivalent of 4 percent of the Slovak Republic’s GDP in short-term funds.

### Quantification tables — selected consolidated totals (as at End-2007)
- Short-term foreign bank claims on the nonbank private sector — consolidated totals (In millions of U.S. dollars): 125,122 (LC LC), 36,829 (LC FC), 135,008 (XBC), total 296,959.
- Short-term foreign bank claims on the nonbank private sector — consolidated totals (In percent of host GDP): examples presented include 3.8, 1.1, 4.1, 8.9 (CESE-13 totals across components).
- Short-term foreign bank claims on the banking sector — consolidated totals (In millions of U.S. dollars): 43,928 (LC LC), 13,457 (LC FC), 55,411 (XBC), total 112,796.
- Short-term foreign bank claims on the banking sector — consolidated totals (In percent of host GDP): examples presented include 1.3, 0.4, 1.7, 3.4 (CESE-13 totals across components).
- Note: LC LC = local claims of LAFBs in local currency; LC FC = local claims of LAFBs in foreign currency; XBC = cross-border claims.

### Longer-term exposures — aggregate and country-level concentrations
- Definition: longer-term claims = total claims on the region minus short-term claims.
- Aggregate longer-maturity exposures to the CESE-13 nonbank private sector (selected home countries, as percent of own GDP):
  - Austria: 23 percent of own GDP.
  - Sweden: 11 percent of own GDP.
  - Belgium: more than 9 percent of own GDP.
  - Greece: 6 percent of own GDP.
  - United Kingdom: 4 percent of own GDP.
- Sub-regional longer-term exposures (selected):
  - Sweden’s longer-term exposures to the nonbank private sector in the Baltics: almost 10 percent of Sweden’s own GDP.
  - Austria’s exposures to the CEE nonbank private sector: 12 percent of Austria’s GDP.
  - Austria’s exposures to the SEE nonbank private sector: 9 percent of Austria’s GDP.
- Longer-term foreign inter-bank (non-parent) claims:
  - Austrian banks’ largest exposures to individual countries’ banking systems: Hungary and Romania, each amounting to 1.2 percent of Austria’s GDP.
  - Austrian banks’ total inter-bank exposure to CESE: almost 8 percent of Austria’s own GDP (almost 4 percent lent to CEE; around 3 percent to SEE).
  - Sweden’s exposure to CESE-13 banking sectors: almost 4 percent of Sweden’s GDP (most concentrated in the Baltics: 3.5 percent of Sweden’s GDP).
  - Belgian banks’ aggregate inter-bank exposures to CESE-13: 3 percent of Belgium’s own GDP.
  - Exposures of each of the other home countries typically below 2 percent of their respective GDP.

### Possible implications of banks’ funding sources
- Funding sources affect funding stability and capital flight risk: deposits are considered more stable if banking system and financial safety nets are credible; wholesale or inter-bank funding tends to be more volatile.
- Foreign bank subsidiaries in some CESE countries are largely funded by deposits, suggesting lower funding risk for these countries.
- Foreign bank branches tend to rely on funding directly from their foreign parents (more volatile), but branches represent a much smaller proportion of the banking system in the region.
- Close-out netting is largely not applicable when collections of borrowers default; failure of a foreign subsidiary may lead host authorities to ring-fence remaining assets to protect depositors and local financiers.
- CRD/Basel II related constraints: exposures to related-party borrowers (e.g., parent banks) cannot exceed 20 percent of subsidiaries’ own funds; exposures to a client or group of connected clients not to exceed 25 percent of own funds.

### Data shortcomings and areas for improvement
- BIS claims of LAFBs include claims of both foreign subsidiaries and branches; separation would be more informative given different business nature and funding implications.
- The share of local claims of LAFBs in foreign currency may be underestimated for some countries when compared to national data; BIS statistics do not include data for all foreign banks operating in a host country, which can overstate the residual local claims component.
- BIS claims data are reported in U.S. dollars; changes over time may partly reflect exchange rate movements between claim currencies and the U.S. dollar.
- Derived sectoral and maturity data are based on strong proportionality assumptions using aggregate BIS series; these proportions may not hold across components.
- Assumption that ultimate risk equals immediate borrower risk for local claims of LAFBs in local currency may impose an upward bias in claims for recipients of significant foreign direct investments; this may partly explain negative residuals for local claims of LAFBs in foreign currency for some countries (notably, the Czech and Slovak Republics).
- Local claims of LAFBs in local currency may include foreign currency-linked local-currency-denominated claims; where sizeable, indirect credit risk from exchange rate risk may be underestimated.
- IFS data does not break down claims by local and foreign currencies; extent of foreign exchange and indirect credit risks for local banks may be underestimated.
- Recommendation: banking statistics should be collected using standard and consistent methodology across countries (e.g., standards analogous to IMF’s SDDS) to improve international surveillance and cross-country comparability.

### Box 2 — Estonia example: data discrepancies
- Main discrepancy:
  - Bank of Estonia reports local claims by local banks and LAFBs in local currency: 2005: 14.0; 2006: 18.2; 2007: 20.0 (percent of GDP).
  - Bank of Estonia reports local claims by local banks and LAFBs in foreign currency: 2005: 42.9; 2006: 59.8; 2007: 69.0 (percent of GDP).
  - BIS and IFS derived series show large differences for local claims of local banks: BIS/IFS-derived local claims by local banks in all currencies: 2005: 2.9; 2006: 39.5; 2007: 52.0 (percent of GDP).
- Sources of discrepancies:
  - BIS statistics omit about 15 percent of the banking system in Estonia (per central bank estimates), consistent with BIS-reported claims of LAFBs being biased low.
  - Bank of Estonia reports banking sector claims in local and foreign currency but does not break down by LAFBs versus local banks.
  - BIS provides cross-border claims series not available from Bank of Estonia.
  - Differences in reporting basis (ultimate risk vs immediate borrower) can cause mismatches.
- Broader context:
  - Similar discrepancies observed in other countries (e.g., Ukraine).
  - Need for better-quality, more complete, and more comprehensive credit statistics via collaboration among country authorities and international institutions.

### Methodology for allocating foreign bank claims (summary)
- Short-term foreign bank claims multiplied by home country shares (Table 3) to allocate claims by home country on particular host country, by component.
- Longer-term claims computed as total claims minus short-term claims and allocated by same home-country shares.
- Data series mapping (Table A.1 summary):
  - Claims by foreign banks: Total foreign claims, ultimate risk basis = A + B + C. Source: BIS Table 9C:S.
  - Local claims of LAFBs, ultimate risk basis = B + C. Source: BIS Table 9C:U.
  - Cross-border claims, ultimate risk basis = A. Source: BIS Table 9C:T.
  - Local claims of LAFBs in local currency, ultimate risk basis = C. Source: BIS Table 9A:L.
  - Local claims of LAFBs in foreign currency, ultimate risk basis = B (derived).
- Short-term claims sourcing:
  - Total international claims, immediate borrower basis = BIS Table 9A:A.
  - International claims up to and including one year = BIS Table 9A:B.
  - Short-term components for sectors derived by applying maturity proportions to ultimate-risk components.
- BIS consolidated banking conceptual notes:
  - Claims on an ultimate risk basis: allocated to residency of ultimate obligor or guarantor.
  - Claims on an immediate borrower basis: allocated to residency of immediate borrower.
  - Comprehensive ultimate risk basis series available from 2005 onwards.

*Source: Bank for International Settlements; International Financial Statistics, IMF; and authors’ calculations.*

### References..............................................................................................................

### _wp0954 - References..............................................................................................................

### Key findings and conclusions
- Rapid credit growth in CESE in recent years has been largely attributable to expansion activities of international banking groups and substantial funding from abroad, increasing the region’s vulnerability to financial risks.
- Host countries in CESE have become more at risk from a sudden withdrawal of short-term foreign claims, while home countries have significant aggregate “captive” exposures to the region as a whole.
- Increasing integration by CESE countries into international financial markets and a high share of foreign ownership in their banking systems may increase susceptibility to cross-border contagion and feedback effects on home countries.
- Existing international databases are inadequate for cross-border surveillance and policymaking due to:
  - Incompleteness of reporting countries and banks.
  - Inconsistencies in the availability of like data series across countries.
  - Differences in the definition and collection of data.
- A concerted effort is required at the international level to improve data collection for surveillance and policymaking.

### Risks, vulnerability channels, and context
- The tightness in global liquidity conditions and sharp revisions in the pricing of risk have increased the possibility of a sudden stop or reversal in foreign-based lending to some emerging market countries.
- Short-term direct cross-border claims (typically in foreign currency) by foreign banks represent an important source of liquidity risk to the local financial system.
- Concentration of borrowing from a handful of creditor countries increases vulnerability to idiosyncratic shocks from those countries and to business decisions by individual parent banks.
- Even well-capitalized foreign parents are not immune to global shocks; home-country support may be constrained by simultaneity of stress across multiple host markets.
- The analysis does not assess the probability of shocks or countries’ capacities to absorb shocks; vulnerability depends on macroeconomic fundamentals, soundness of financial systems, and contingency planning.

### Data and methodology — scope and objectives
- Objective: develop a comprehensive and consistent dataset to analyze risks associated with bank credit flows in the CESE region.
- Approach: combine BIS Consolidated Banking Statistics (claims data of foreign banks) with IMF IFS credit data to construct a dataset for private bank claims on individual CESE countries.
- Sample grouping: the 13 CESE countries are grouped into sub-regions:
  - Baltics: Estonia, Latvia, and Lithuania.
  - CEE: Czech Republic, Hungary, Poland, Slovak Republic.
  - SEE: Bulgaria, Croatia, Romania, Ukraine.
  - OEE: Russia and Turkey.
- The paper provides a simple quantification of:
  - The possible maximum size of a funding shock on host countries.
  - The maximum possible losses to home country banks from a regional contagion.
- The analysis complements related work that develops indices of exposure to regional contagion and describes propagation channels of regional shocks.

### Derivation and composition of bank claims (methodological details)
- Definition: “foreign bank claims” are the cross-border claims of foreign banks and the local claims of LAFBs in all currencies.
- Four components of bank claims on a particular country:
  - Direct cross-border claims of foreign banks on the host country (“A”).
  - Local claims of LAFBs in foreign currency (“B”).
  - Local claims of LAFBs in local currency (“C”).
  - Local claims of local banks (“E”).
- Focus: composition of bank claims on the nonbank private sector (shares held by local banks, LAFBs and banks located in the home country).
- Data basis and assumptions:
  - Use BIS data on ultimate risk basis where available.
  - Apply explicit assumptions to BIS immediate borrower basis data to bridge gaps in ultimate risk data (see Appendix II for calculations and assumptions).
  - Where currency composition of local claims of local banks is unavailable, cannot differentiate between foreign currency and local currency loans for that category.
- Maturity decomposition:
  - Short-term: maturity of one year or less — used to quantify host countries’ vulnerability to sudden withdrawal of funding.
  - Longer-term: maturity greater than one year — used to estimate foreign banks’ exposures to credit risk and potential deterioration of “captive” claims following liquidity shocks.
- Claims on the banking sector and funding sources are examined using BIS data (including inter-bank lending vs. domestic deposits or capital markets).

### Implications for surveillance and policy
- Policymakers and supervisors need comprehensive, detailed, and comparable cross-country exposure data to assess banks’ risk management strategies and to formulate crisis prevention and management policies.
- The constructed dataset improves visibility into the composition of foreign versus local credit but discrepancies persist, underscoring the need for enhanced international coordination on data collection and standardization.
- Monitoring the maturity structure and currency composition of foreign claims is critical to assess liquidity risk and potential credit quality deterioration in host countries.
- Given potential feedback effects, both host- and home-country authorities should consider cross-border implications when designing contingency and crisis-management frameworks.

### Glossary (selected definitions used in the analysis)
- Baltics: Estonia, Latvia, and Lithuania.
- CEE: Central and Eastern Europe (Czech Republic, Hungary, Poland, Slovak Republic).
- CESE: Central, Eastern and South-Eastern Europe (Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russia, Slovak Republic, Turkey and Ukraine, plus Albania, Belarus, Bosnia and Herzegovina, Cyprus, Macedonia, Malta, Moldova, Montenegro and Serbia).
- CESE-13: Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russia, Slovak Republic, Turkey and Ukraine.
- Home country: Creditor country to CESE.
- Host country: CESE debtor country.
- LAFBs: Local affiliates of foreign banks (local branches or subsidiaries).
- OEE: Other Emerging Europe (Russia and Turkey).
- SEE: South-Eastern Europe (Bulgaria, Croatia, Romania, Ukraine).

*Excerpted from _wp0954 - References.*

### Box 1. Deriving the Components of Bank Claims from BIS and IFS Data

### Box 1. Deriving the Components of Bank Claims from BIS and IFS Data

### Data sources and measurement bases
- Use a combination of BIS and IFS data to construct the different components of bank claims on a particular country.
- Within the BIS database, statistics are available on ultimate risk and immediate borrower bases, and a combination of both is applied in derivations of claims by foreign and local banks on a host country.
- For the purposes of the calculations, BIS claims data are available on an ultimate risk basis for:
  - (i) total foreign claims;
  - (ii) cross-border claims of foreign banks; and
  - (iii) all local claims of LAFBs;
  - data is available on an immediate borrower basis for: local claims of LAFBs in local currency.

### Step 1: Separate local claims of LAFBs into local and foreign currency series
- Assumption: the local claims of LAFBs in local currency on immediate borrower basis are equal to the local claims of LAFBs on ultimate risk basis.
- Derivation:
  - Local claims of LAFBs in foreign currency = All local claims of LAFBs – Local claims of LAFBs in local currency.

### Step 2: Derive local claims of local banks on the nonbank private sector
- IFS statistic: reports the claims of all depository institutions in the country on the nonbank private sector.
- Derivation:
  - The local claims of local banks series = IFS series (claims of all depository institutions on the nonbank private sector) less the BIS data on all claims of LAFBs.

*Source: Box 1. Deriving the Components of Bank Claims from BIS and IFS Data*

### 3.      Thus, we have the following four components that make up the claims on a particular country:

### 3.      Thus, we have the following four components that make up the claims on a particular country:

### Components and allocation methodology
- Four components of claims on a particular country:
  - (i) cross border claims of foreign banks;
  - (ii) local claims of LAFBs in foreign currency;
  - (iii) local claims of LAFBs in local currency; and
  - (iv) local claims of local banks.
- Sectoral allocation:
  - BIS sectoral data on total foreign claims on an ultimate risk basis are used to determine each sector’s amount in each foreign claims component (banking, nonbank private, public).
  - Assumption: each sector’s proportion in total foreign claims is the same as that in each component of foreign claims.
- Maturity allocation:
  - BIS statistics report total international claims (direct cross-border claims plus local claims of LAFBs in foreign currency) on an immediate borrower basis by maturity.
  - Assumption: each maturity’s proportion in total international claims on an immediate borrower basis is the same as that for each component of foreign claims on an ultimate basis on each sector.
  - These proportions are applied to derive short- and longer-term claims amounts.

### Selection of home and host countries (CESE-13 focus)
- Sample focus: main 13 CESE (“CESE-13”) countries, which account for around 90 percent of region’s total foreign exposures to BIS-reporting banks.
- Concentration of exposures:
  - Some 75 percent of these exposures are concentrated in five host countries:
    - Poland, 15 percent;
    - Russia, 14 percent;
    - the Czech Republic, 11 percent;
    - Turkey, 10 percent; and
    - Hungary, 9 percent.
  - Foreign banks have their smallest exposures to Bulgaria, Ukraine, and the Baltic countries, each accounting for less than 3 percent of total foreign claims on the region.
- Home-country creditor importance:
  - Austria is the most important creditor country for CESE, accounting for almost 19 percent of foreign bank funding to the region, followed by Germany and Italy.
  - The 13 countries in the sample account for 96 percent of CESE liabilities to BIS-reporting banks.
- Selected table highlights (as at End-2007):
  - Table 1: Host-country shares (percent of total foreign claims on the region):
    - Poland 15.24
    - Russia 13.91
    - Czech Republic 11.49
    - Turkey 9.9
    - Hungary 9.29
    - Romania 7.46
    - Croatia 6.21
    - Slovak Republic 5.19
    - Ukraine 2.92
    - Bulgaria 2.27
    - Estonia 2.11
    - Latvia 2.01
    - Lithuania 1.86
    - Others 10.8
  - Table 2: Home-country shares (percent of home country’s total foreign claims; percent of total foreign claims on the region):
    - Greece 76.7 / 21.9 / 4.9
    - Austria 49.37 / 0.0 / 18.6
    - Italy 17.5 / 9.1 / 13.6
    - Sweden 12.4 / 18.6 / 6.0
    - Belgium 9.0 / 26.3 / 8.5
    - Germany 4.8 / 6.0 / 14.2
    - France 4.0 / 5.3 / 9.8
    - United States 3.9 / 0.1 / 4.5
    - Netherlands 3.6 / 11.0 / 6.1
    - Switzerland 2.4 / 14.5 / 4.3
    - United Kingdom 1.6 / 2.3 / 3.5
    - Japan 1.2 / 0.1 / 1.8
    - Others ---- / ---- / 4.1

### Stylized facts: changes in claims, composition, and maturities
- Overview:
  - Significant shifts in origination (foreign vs domestic banks), currency (foreign vs local), sector (public vs private), and maturity of bank claims across CESE over a short period.
  - All data presented are on an ultimate risk basis unless stated otherwise.
- Key patterns by creditor and host:
  - Austria:
    - Accounts for the largest share of total foreign bank claims in 6 of 13 host countries (Croatia, Czech Republic, Hungary, Romania, Slovak Republic, Ukraine).
    - In some instances, Austria accounts for more than 35 percent of total foreign bank borrowing by these countries.
    - Austria figures prominently in Bulgaria (third largest foreign lender, accounting for 16 percent).
  - Sweden:
    - Highly concentrated lending to the Baltic countries: over 90 percent of Estonia’s foreign bank funding and 78 percent of both Latvia’s and Lithuania’s total foreign borrowings.
  - France, Germany, Italy:
    - Important creditors across most CESE countries; shares vary widely (e.g., German banks 24 percent of total foreign claims on Hungary to around 2 percent on Estonia).
  - Greece:
    - Most important foreign creditor for Turkey (28 percent) and Bulgaria (20 percent).
- Home-country exposures to CESE relative to their size:
  - Austria: total claims on CESE account for 49 percent of its total foreign claims, and some 70 percent of GDP.
  - Greece: CESE countries account for almost 77 percent of Greek banks’ total foreign claims worldwide, equivalent to 22 percent of Greece’s GDP.
  - Swedish and Belgian banks: exposures represent 12 and 9 of their respective total global claims, and 19 and 26 percent respectively of their own GDP.
- Geographic concentration and diversification:
  - The Czech Republic, Poland, and Russia are among the most popular destinations for foreign bank lending.
  - For almost all creditor countries, 50 percent or more of their total claims on CESE are attributable to three host countries (ratio rises to 80 percent in the case of Greece, Japan, and Sweden).
  - Austria has the most diversified loan portfolio among major home countries (three biggest CESE borrowers account for less than half of its total claims on the region).

#### Maturity structure changes (March 2005–December 2007)
- Table 5 summary (Longer-term foreign bank claims in percent of total foreign bank claims):
  - Bulgaria: March 2005 49 -> June 2007 60 -> December 2007 61 (↑↑↑)
  - Croatia: 62 -> 64 -> 70 (↑↑↑)
  - Czech Republic: 66 -> 63 -> 61 (↓↓↓)
  - Estonia: 69 -> 74 -> 80 (↑↑↑)
  - Hungary: 73 -> 71 -> 71 (↓→↓)
  - Latvia: 70 -> 48 -> 68 (↓↑↓)
  - Lithuania: 71 -> 75 -> 78 (↑↑↑)
  - Poland: 76 -> 74 -> 75 (↓↑↓)
  - Romania: 52 -> 41 -> 45 (↓↑↓)
  - Russia: 55 -> 50 -> 50 (↓↓↓)
  - Slovak Republic: 58 -> 63 -> 58 (↑↓→)
  - Turkey: 43 -> 57 -> 54 (↑↓↑)
  - Ukraine: 56 -> 63 -> 48 (↑↓↓)
- Notes:
  - Maturity data only available on immediate borrower basis; longer-term claims defined as maturities of more than a year.
  - Onset of global financial crisis in summer 2007 influenced maturity profiles (e.g., Latvia lengthened between June 2007 and December 2007 after earlier retrenchment; Ukraine shortened since June 2007).
  - Romania and Ukraine have the biggest proportion of short-term foreign claims (more than half); Estonia and Lithuania have the smallest short-term shares (20 and 22 percent, respectively).

#### Sectoral structure changes (March 2005–December 2007)
- General patterns:
  - Foreign banks’ claims on the public sector fell as a percentage of total claims across most CESE-13 countries (exceptions: Czech Republic increase; Estonia and Slovak Republic unchanged).
  - Highest foreign bank claims on public sector: Poland and Slovak Republic at 28 percent of total claims.
  - Lowest foreign bank claims on public sector: Estonia 3 percent; Latvia and Russia 6 percent.
  - Proportion of claims on private sector increased across most countries; within private sector, claims shifted toward the nonbank private sector.
  - Nonparent inter-bank claims declined in importance except in Lithuania (12 to 21 percent) and Russia (27 to 30 percent); maintained in Poland.

### Local and foreign banks’ claims on the private sector (CESE-13)
- Depth of financial intermediation (total bank credit to nonbank private sector in percent of GDP):
  - Baltics: around 120 percent;
  - CEE: about 60 percent;
  - SEE: 70 percent;
  - Other Emerging Europe (OEE): just over 40 percent.
  - Country examples:
    - Estonia 162 percent of GDP;
    - Latvia 126 percent of GDP;
    - Croatia 119 percent of GDP;
    - Russia around 46 percent of GDP;
    - Turkey 38 percent of GDP.
- Reliance on foreign bank funding:
  - Foreign bank share of total bank claims increased notably, especially in Baltics (from about 20 percent to almost 70 percent of total bank claims; from 10 percent to 80 percent of GDP between March 2005–December 2007).
  - Latvia: foreign bank claims rose from 15 percent of total bank claims (9 percent of GDP) in 2005 to 73 percent (92 percent of GDP) as at end-2007.
  - Czech Republic: foreign banks ~80 percent of total bank claims.
  - Russia and Turkey: domestic banks continue to dominate (> two-thirds of total claims on nonbank private sector).
- Currency composition:
  - Foreign bank claims increasingly denominated in foreign currency, especially in SEE and Baltic countries.
  - Larger portion of aggregate foreign bank claims on CEE remains in local currency.
  - Exceptions with strong local-currency LAFB lending growth up to end-2007: Czech Republic, Lithuania, Slovak Republic, and to a lesser extent Romania.
- Nonparent inter-bank funding:
  - Varies from 10–30 percent of GDP on average across CESE-13 banking sectors.
  - Highest in Estonia (42 percent of GDP) and Latvia (34 percent of GDP).
  - Lowest in Russia and Turkey (less than 5 percent of GDP).
  - Most nonparent inter-bank funding is direct cross-border credit or local currency credit from other LAFBs; foreign-currency LAFB lending to local banking sector is generally least important (exception: Latvia, where it is at least as large as other components).

### Quantification of home and host “exposures” — Short-term exposures
- Definitions and objectives:
  - Short term defined as one year or less; long term is greater than one year.
  - Aims:
    - Determine maximum possible liquidity that could be withdrawn quickly from host countries in case of shocks.
    - Determine maximum possible losses that home countries could incur if host country shock deteriorates asset quality of longer-term claims.
- Aggregate short-term claims:
  - The aggregate short-term claims of foreign banks on CESE-13’s nonbank private sector amount to 9 percent of CESE-13 GDP.
  - Majority share of this funding is in the form of direct cross-border loans: 4 percent of the region’s GDP.
- Sub-regional short-term patterns and values:
  - Baltics:
    - Short-term claims on the Baltic nonbank private sector amount to almost 20 percent of Baltic GDP, almost half as direct cross-border loans.
    - Since mid-2007, withdrawal of short-term funding occurred: Latvia short-term funding fell from 45 percent of GDP to 30 percent of GDP; some withdrawals also in Estonia.
    - Longer-term claims increased during this period, indicating maturity shift.
  - SEE:
    - Short-term funding accounts for more than 17 percent of sub-region’s total GDP; slightly more than 20 percent of GDP for Bulgaria, Croatia, and Romania.
  - CEE:
    - Short-term funding largely from LAFBs in local currency: almost 8 percent of host GDP; cross-border funding around 4 percent of GDP.
  - OEE (Russia and Turkey):
    - Least dependent on short-term foreign bank funding: total short-term liabilities of the nonbank private sector amount to only 5 percent of GDP; direct cross-border borrowing ~two-thirds of this amount.
- Inter-bank short-term exposure:
  - Baltic and SEE banking systems appear most reliant on inter-bank liquidity: nonparent foreign bank funding ~7 percent of Baltic GDP.
  - Between mid- and end-2007, Baltic countries experienced withdrawal of inter-bank funding; Latvia: short-term inter-bank claims fell to 11 percent of its GDP from more than 20 percent, with no offset in longer-term claims.
  - Some countries less prone to shocks because composition of foreign bank claims is more stable (e.g., Slovak Republic and Czech Republic banking sectors’ inter-bank claims largely by LAFBs and denominated in local currency).
- Home-country short-term creditor importance and exposures:
  - Austria is the most important short-term creditor to the region’s nonbank private sector.
    - Austria’s outstanding short-term claims on the region amount to 1.7 percent of aggregate CESE-13 GDP.
    - Germany and Italy each have short-term claims amounting to 1.1 percent of the region’s GDP.
    - These claims are largely credit from LAFBs in local currency and cross-border loans.
  - Austria is also the most exposed home country in terms of short-term lending to the region:
    - Austria’s short-term claims amount to almost 15 percent of its own GDP.
    - Belgium and Greece follow with total short-term claims of 5.6 and 5.1 percent, respectively.
- Sub-regional home-country roles (short-term):
  - Sweden:
    - Main short-term lender to the Baltics: loans just over 16 percent of Baltic GDP (largest proportion cross-border).
    - Baltics are most important short-term debtor group for Sweden, accounting for 3.1 percent of Sweden’s GDP.
  - Austria:
    - Main short-term creditor to CEE (LAFBs in local currency) and SEE (LAFBs in local currency and cross-border loans):
      - Short-term loans amounting to about 3 percent of CEE GDP and 6 percent of SEE GDP.
      - Austria’s exposure to both sub-regions each represent 6.3 percent of Austrian GDP.
    - Italy is the second most important short-term lender to both CEE and SEE, with loans amounting to 2.3 and 2.5 percent of their GDP, respectively.
- Host-country level short-term exposure highlights:
  - Austria is the most important short-term lender for multiple host countries:
    - In terms of host GDP: Croatia (8.4 percent), Czech Republic, Hungary, Romania (8.8 percent), Slovak Republic and Ukraine receive their largest short-term loans from Austria.
    - In terms of Austria’s own GDP: most exposed to Romania (3.9 percent) and Czech Republic (3 percent).
  - Sweden is the key short-term creditor to each of the Baltic countries:
    - Latvia borrowed the equivalent of some 22 percent of its GDP from Swedish banks;
    - Estonia about 20 percent of its GDP from Swedish banks.

*Sources: Bank for International Settlements; International Financial Statistics, IMF; and authors’ calculations.*

### 1.3 and 1 percent of Sweden’s GDP, respectively.

### _wp0954 - 1.3 and 1 percent of Sweden’s GDP, respectively.

### Findings
- 1.3 and 1 percent of Sweden’s GDP, respectively.
- The trends in home country lending to the banking sector of host countries are similar to the nonbank private sector:

### Notes
- 25
- ¾ Austria is the key short-term (nonparent) lender to the region, accounting for

*Source: _wp0954 - 1.3 and 1 percent of Sweden’s GDP, respectively.*

### 0.6 percent of CESE GDP, or 5.6 percent of its own GDP (see Table 7). It plays a

### _wp0954 - 0.6 percent of CESE GDP, or 5.6 percent of its own GDP (see Table 7). It plays a

### Short-term exposures: headline findings
- Short-term inter-bank lending amounts to 2.4 percent of the SEE sub-region’s GDP, compared to 1 percent of CEE GDP.
- Austrian banks’ short-term lending to the Slovak Republic: lending equivalent of 4 percent of the Slovak Republic’s GDP in short-term funds.
- Austrian banks’ short-term lending to Romania: 3.4 percent of Romania’s GDP.
- Sweden’s short-term (nonparent) inter-bank lending to the Baltics: 5.8 percent of Baltic GDP, or 1.1 percent of Sweden’s own GDP.
- Sweden’s claims on the Latvian and Estonian banking sectors: around 8 percent of host GDP.

### Quantification of short-term claims (Table 7): key statistics and aggregates (as at End-2007)
- Total (Non-bank private sector, In millions of U.S. dollars): 125,122 (LC LC), 36,829 (LC FC), 135,008 (XBC), total 296,959 (as presented in table).
- Total (In percent of host GDP) reported across components includes values such as: 3.8, 1.1, 4.1, 8.9 (CESE-13 totals across components).
- Banking sector totals (In millions of U.S. dollars): 43,928 (LC LC), 13,457 (LC FC), 55,411 (XBC), total 112,796 (as presented in table).
- Banking sector totals (In percent of host GDP): examples across components include 1.3, 0.4, 1.7, 3.4 (CESE-13 totals across components).
- Note: LC LC = local claims of LAFBs in local currency; LC FC = local claims of LAFBs in foreign currency; XBC = cross-border claims.

### Longer-term exposures: aggregate and country-level concentrations
- Definition: longer-term claims = total claims on the region minus short-term claims; represent longer-term losses on foreign banks’ credit portfolios “captive” in CESE countries.
- Aggregate home-country longer-maturity exposures to the CESE-13 nonbank private sector (selected home countries, as percent of own GDP):
  - Austria: 23 percent of own GDP.
  - Sweden: 11 percent of own GDP.
  - Belgium: more than 9 percent of own GDP.
  - Greece: 6 percent of own GDP.
  - United Kingdom: 4 percent of own GDP.
- Sub-regional longer-term exposures (selected):
  - Sweden’s longer-term exposures to the nonbank private sector in the Baltics: almost 10 percent of Sweden’s own GDP.
  - Austria’s exposures to the CEE nonbank private sector: 12 percent of Austria’s GDP.
  - Austria’s exposures to the SEE nonbank private sector: 9 percent of Austria’s GDP.
- Longer-term foreign inter-bank (non-parent) claims:
  - In each host country, longer-term foreign inter-bank claims amount to around 1 percent of home country GDP or less.
  - Austrian banks’ largest exposures to individual countries’ banking systems: Hungary and Romania, each amounting to 1.2 percent of Austria’s GDP.
- Aggregate inter-bank exposures (longer-term):
  - Austrian banks’ total inter-bank exposure to CESE: almost 8 percent of Austria’s own GDP.
    - Mostly lent to banks in the CEE countries: almost 4 percent of Austria’s own GDP.
    - Banking sector in the SEE countries: around 3 percent of Austria’s own GDP.
  - Sweden’s exposure to the CESE-13 banking sectors: almost 4 percent of Sweden’s GDP, most concentrated in the Baltic countries (3.5 percent of Sweden’s GDP).
  - Belgian banks’ aggregate inter-bank exposures to CESE-13: 3 percent of Belgium’s own GDP.
  - Exposures of each of the other home countries typically below 2 percent of their respective GDP.

### Possible implications of banks’ funding sources
- Funding sources affect funding stability and capital flight risk: deposits are considered more stable if banking system and financial safety nets are credible; wholesale or inter-bank funding tends to be more volatile.
- Foreign bank subsidiaries in some CESE countries are largely funded by deposits, suggesting lower funding risk for these countries (Figure 5 reference).
- Foreign bank branches tend to rely on funding directly from their foreign parents (more volatile), but branches represent a much smaller proportion of the banking system in the region (Figure 6 reference).
- Close-out netting is largely not applicable when collections of borrowers default; failure of a foreign subsidiary may lead host authorities to ring-fence remaining assets to protect depositors and local financiers.
- CRD/Basel II related constraints mentioned in the paper: exposures to related-party borrowers (e.g., parent banks) cannot exceed 20 percent of subsidiaries’ own funds; exposures to a client or group of connected clients not to exceed 25 percent of own funds.

### Data shortcomings and areas for improvement
- BIS claims of LAFBs include claims of both foreign subsidiaries and branches; separation would be more informative given different business nature and funding implications.
- The share of local claims of LAFBs in foreign currency may be underestimated for some countries when compared to national data; BIS statistics do not include data for all foreign banks operating in a host country, which can overstate the residual local claims component.
- BIS claims data are reported in U.S. dollars; changes over time may partly reflect exchange rate movements between claim currencies and the U.S. dollar.
- Derived sectoral and maturity data are based on strong proportionality assumptions using aggregate BIS series; these proportions may not hold across components.
- Assumption that ultimate risk equals immediate borrower risk for local claims of LAFBs in local currency may impose an upward bias in claims for recipients of significant foreign direct investments; this may partly explain negative residuals for local claims of LAFBs in foreign currency for some countries (notably, the Czech and Slovak Republics).
- Local claims of LAFBs in local currency may include foreign currency-linked local-currency-denominated claims; where sizeable, indirect credit risk from exchange rate risk may be underestimated.
- IFS data does not break down claims by local and foreign currencies; extent of foreign exchange and indirect credit risks for local banks may be underestimated.
- Recommendation (implicit in analysis): banking statistics should be collected using standard and consistent methodology across countries (e.g., standards analogous to IMF’s SDDS) to improve international surveillance and cross-country comparability.

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2009/_wp0954.pdf*

### Box 2. Discrepancies Among Sources of Banking Claims Data: The Estonia Example

### Box 2. Discrepancies Among Sources of Banking Claims Data: The Estonia Example

### Overview and main discrepancy
- The Estonian case illustrates significant discrepancies between BIS/IFS-derived data and national authorities’ data for banking claims, particularly for local claims of local banks.
- While total local claims of all banks are broadly similar between BIS/IFS and Bank of Estonia for 2005 and 2006 (with larger divergence in 2007), the local claims of local banks differ markedly:
  - Bank of Estonia reports local claims by local banks and LAFBs as less than 1 percent of GDP from 2005–07.
  - Derived amounts using BIS and IFS data show these claims between 30–52 percent of GDP over the same period.
- Implication: The claims of LAFBs appear to be significantly underestimated in BIS/IFS-derived local-bank series for Estonia.

### Box Table 1 — Key figures (In percent of GDP)
- Bank of Estonia
  - (1) Local claims by local banks and LAFBs in local currency: 2005: 14.0; 2006: 18.2; 2007: 20.0
  - (2) Local claims by local banks and LAFBs in foreign currency: 2005: 42.9; 2006: 59.8; 2007: 69.0
  - (3) = (1) + (2) From both of which is derived: Local claims by local banks and LAFBs in all currencies: 2005: 56.9; 2006: 78.0; 2007: 89.0
  - (4) Of which: Local claims by local banks in all currencies: 2005: 0.36; 2006: 0.56; 2007: 0.73
- BIS and IFS
  - (a) Local claims by LAFBs in local currency: 2005: 13.9; 2006: 20.1; 2007: 22.5
  - (b) Local claims by LAFBs in foreign currency: 2005: 11.4; 2006: 20.8; 2007: 25.0
  - (c) Local claims by local banks and LAFBs in all currencies: 2005: 54.8; 2006: 80.3; 2007: 99.5
  - (d) = (c) – (b) – (a) From all of which is derived: Local claims by local banks in all currencies: 2005: 2.9; 2006: 39.5; 2007: 52.0
  - (e) Cross-border claims by foreign banks: 2005: 51.0; 2006: 62.2; 2007: 62.1

Sources: Bank of Estonia; Bank for International Settlements; International Financial Statistics, IMF; and authors’ calculations.

### Sources of discrepancies (detailed differences)
- Coverage and omission:
  - Bank of Estonia provides data encompassing the claims of all banks on the nonbank private sector in Estonia.
  - BIS statistics omit about 15 percent of the banking system in Estonia (per the central bank’s estimates), consistent with BIS-reported claims of LAFBs being biased low.
- Currency and institutional breakdowns:
  - Bank of Estonia reports banking sector claims in local and foreign currency but does not break down these claims by LAFBs versus local banks.
  - BIS reports all claims of LAFBs; IFS reports credit provided by all depository institutions to the nonbank private sector. The difference between BIS and IFS represents the local claims of local banks in the BIS/IFS-derived approach.
- Cross-border claims:
  - BIS statistics include a separate series on direct cross-border claims of BIS-reporting foreign banks on Estonia — a crucial element for cross-border credit surveillance. Bank of Estonia does not provide this series.
- Reporting basis:
  - BIS reports data on ultimate and immediate borrower bases.
  - Country authorities’ data are likely reported on an immediate borrower basis; differences in basis can cause discrepancies.

### Broader context and implications
- Similar discrepancies exist in other cases (e.g., Ukraine: BIS shows foreign banks’ total claims around 23 percent of the nonbank private sector, while national sources indicate market share closer to 50 percent).
- The global financial crisis underscores the need for reliable banking statistics for cross-border monitoring, particularly in CESE where foreign banks play a major role and rapid withdrawals or refusals to roll over loans can have severe regional consequences.
- Granularity in BIS data (sectoral and maturity breakdowns), combined with IFS data on local claims by local banks, enables analysis of stability implications of bank funding to the nonbank private sector.

### Methodological approach to reconcile and construct claims components
- Required series for host-country claims:
  - Direct cross-border claims of foreign banks on the host country (“A”)
  - Local claims of LAFBs in foreign currency (“B”)
  - Local claims of LAFBs in local currency (“C”)
  - Local claims of local banks (“E”)
- Data availability and mapping:
  - BIS ultimate risk data: total foreign claims, cross-border claims (assumed all in foreign currency), and all local claims of LAFBs.
  - BIS immediate borrower data: total foreign claims, international claims (“A + B”), and local claims of LAFBs in local currency (“C”).
  - IFS (line 32d): claims of depository corporations in local currency on the resident nonbank private sector (provides “E_NBP” when combined with BIS-derived B_NBP and C_NBP).
- Steps to derive components on an ultimate risk basis:
  - Assume local-currency claims of LAFBs are largely on local borrowers; net risk transfer negligible.
  - Set local claims of LAFBs in local currency on ultimate risk basis equal to immediate borrower series for local-currency local claims.
  - Compute local claims of LAFBs in foreign currency on ultimate risk basis as the difference between BIS ultimate-risk total local claims of LAFBs and the local-currency component.
- Sectoral allocation:
  - Assume the proportion of total foreign claims for each sector (nonbank private, public, banks) is the same across cross-border and local claims components.
  - Apply these sectoral proportions to apportion A, B, C into A_NBP, B_NBP, C_NBP for the nonbank private sector, and A_BK, B_BK, C_BK for the banking sector.
- Maturity (short-term) allocation:
  - Assume the proportion of total international claims (immediate borrower basis) by maturity applies to each ultimate-risk foreign-claims component.
  - Use these proportions to derive short-term (up-to-and-including-1-year) values for A_NBP_ST, B_NBP_ST, C_NBP_ST and equivalents for the banking sector.
- Deriving local claims of local banks (“E”):
  - Convert IFS series into U.S. dollars using IFS quarterly exchange rates to match BIS denomination, yielding B_NBP + C_NBP + E_NBP.
  - Estimate E_NBP by subtracting B_NBP + C_NBP from the IFS series for local claims of all banks on the nonbank private sector.
- Allocating claims by foreign-bank home countries:
  - Assume the share of claims by banks of individual home countries on individual host countries (as presented in table 3 of the main text) applies to each claims component on an ultimate risk basis by sector and maturity.

### Policy and data-collection recommendations
- Financial surveillance should focus on:
  - Sources of financing of credit;
  - Composition of credit;
  - Impact on a country’s external position; and
  - Banking systems’ ability to absorb liquidity shocks and sharp reversals in the credit cycle.
- Improve multilateral credit data collection:
  - No single source (BIS, IFS, national) is categorically superior; solution requires greater collaboration among country authorities and international financial institutions (such as BIS and IMF) to collect better-quality, more complete, and more comprehensive credit statistics.

*Sources: Bank of Estonia; Bank for International Settlements; International Financial Statistics, IMF; and authors’ calculations.*

### 5.      Taking the data series presented in Figure 3 and Appendix IV, Figure A.2 of short-

### _wp0954 - 5.      Taking the data series presented in Figure 3 and Appendix IV, Figure A.2 of short-

### Methodology for Allocating Foreign Bank Claims
- Short-term foreign bank claims on the banking and nonbank private sectors (from Figure 3 and Appendix IV, Figure A.2) are multiplied by the corresponding home country share shown in Table 3 of the main text to arrive at the amount of claim by each home country on a particular host country, for each component.
- Longer-term foreign bank claims components for the nonbank and banking sectors of each host country are calculated as the difference between the total foreign bank claims components for each sector and their respective short-term amounts. These longer-term series are also multiplied by the home country shares in Table 3.

### Data Series, Sources, and Derivations (Table A.1 summary)
- Claims by foreign banks: Total foreign claims, ultimate risk basis = A + B + C. Source: Bank for International Settlements. BIS Table 9C:S.
- Local claims of local affiliates of foreign banks ("LAFBs"), ultimate risk basis = B + C. Source: Bank for International Settlements. BIS Table 9C:U.
- Cross-border claims, ultimate risk basis = A. Source: Bank for International Settlements. BIS Table 9C:T.
- Local claims of LAFBs in local currency, ultimate risk basis = C. Source: Bank for International Settlements. BIS Table 9A:L; assume little net risk transfer so immediate borrower basis equals ultimate risk basis.
- Local claims of LAFBs in foreign currency, ultimate risk basis = B. Source: Bank for International Settlements and authors' calculations. Derived as difference between BIS Table 9C:U and BIS Table 9A:L.

Foreign claims by sector (all ultimate risk basis; sources BIS and authors' calculations):
- Foreign claims on non-bank private sector = BIS Table 9C:H.
- Foreign claims on banks = BIS Table 9C:F.
- Cross-border claims on non-bank private sector = A_NBP (Series "A" apportioned for foreign claims on non-bank private sector, BIS Tables 9C:S and 9C:H).
- Cross-border claims on banks = A_BK (Series "A" apportioned for foreign claims on banks, BIS Tables 9C:S and 9C:F).
- Local claims of LAFBs on the non-bank private sector in local currency = C_NBP (Series "C" apportioned for foreign claims on the non-bank private sector, BIS Tables 9C:S and 9C:H).
- Local claims of LAFBs on banks in local currency = C_BK (Series "C" apportioned for foreign claims on banks, BIS Tables 9C:S and 9C:F).
- Local claims of LAFBs on the non-bank private sector in foreign currency = B_NBP (Series "B" apportioned for foreign claims on the non-bank private sector, BIS Tables 9C:S and 9C:H).
- Local claims of LAFBs on banks in foreign currency = B_BK (Series "B" apportioned for foreign claims on banks, BIS Tables 9C:S and 9C:F).

Local claims on the non-bank private sector (sources: IFS; BIS and authors' calculations):
- Local claims of all banks on the non-bank private sector = IFS Line 32d.
- Local claims of local banks on the non-bank private sector = E_NBP (IFS and BIS; difference between IFS Line 32d and local claims of the banking group's foreign offices on the non-bank private sector).
- Domestic claims of LAFBs on the non-bank private sector = Difference between claims of depository corporations in the banking group's home country on the resident private sector (IFS Line 32d) and the local claims of LAFBs on the non-bank private sector in that country (BIS Table 9C:U).

Short-term foreign claims by sector (sources: BIS and authors' calculations):
- Total international claims, immediate borrower basis = BIS Table 9A:A.
- International claims up to and including one year, immediate borrower basis = BIS Table 9A:B.
- Cross-border claims up to and including one year on non-bank private sector, ultimate risk basis = A_NBP_ST (Series "A_NBP" apportioned for claims of one year or less, BIS Tables A:A, 9A:B and 9C:H).
- Cross-border claims up to and including one year on banks, ultimate risk basis = A_BK_ST (Series "A_BK" apportioned for foreign claims on banks, BIS Tables A:A, 9A:B and Table 9C:F).
- Local claims of LAFBs in local currency up to and including one year on the non-bank private sector, ultimate risk basis = C_NBP_ST (Series "C_NBP" apportioned for foreign claims on the non-bank private sector, BIS Tables A:A, 9A:B and Table 9C:H).
- Local claims of LAFBs in local currency up to and including one year on banks, ultimate risk basis = C_BK_ST (Series "C_BK" apportioned for foreign claims on banks, BIS Tables A:A, 9A:B and Table 9C:F).
- Local claims of LAFBs in foreign currency up to and including one year on non-bank private sector, ultimate risk basis = B_NBP_ST (Series "BNBP" apportioned for foreign claims on the non-bank private sector, BIS Tables A:A, 9A:B and Table 9C:H).
- Local claims of LAFBs in foreign currency up to and including one year on banks, ultimate risk basis = B_BK_ST (Series "B_BK" apportioned for foreign claims on banks, BIS Tables A:A, 9A:B and Table 9C:F).

### BIS Consolidated Banking Data — Conceptual Notes (Box A.1)
- Claims on an ultimate risk basis: allocated to the country where the final risk lies; criterion = residency of the ultimate obligor or guarantor. Claims are cross border when the ultimate obligor or guarantor resides in a country different from the reporting institution.
- Claims on an immediate borrower basis: allocated to the country where the original risk lies; capture default risk of the immediate borrower, defined by residence of the counterparty of the head office or foreign offices of reporting banks.
- Comprehensive ultimate risk basis series available from 2005 onwards.
- Net risk transfers equal difference between inward transfers of risk to the country of the ultimate obligor and outward transfers of risk from the country of the immediate borrower; aggregate net risk transfers should in principle equal zero but do not in consolidated banking statistics because banks do not report risk allocations to or from their home country.

### Box Table 1: Consolidated Foreign Exposures of BIS Reporting Banks, Positions Outstanding, as at End-March 2005 (selected figures as reported)
- Foreign claims (A+B+C) 13,667.6 -321.7 13,344.4
- Immediate borrower claims (international) 8,125.3
- Local claims – in foreign currency (B) and – in local currency (C): 4,622.8 (presented in table as part of breakdown)
- Derivative contracts 1,702.8
- Guarantees extended 674.9
- Credit commitments 2,661.2
- Claims by sector (ultimate risk) 13,344.4
  - Public sector 1,627.0 2,095.3
  - Banks 3,451.3 4,206.5
  - Non-bank private sector 3,933.5 3,549.5
  - Unallocated 33.0 493.1
- Claims by maturity (immediate borrower basis/international claims) 9,044.8
  - Up to and including 1 year 4,428.7
  - Over 1 year up to and including 2 years 309.8
  - Over 2 years 2,513.7
  - Unallocated 1,792.6
- Memorandum: Starting date of time series December 1983; June 1999; March 2005 (as presented in table).

### Appendix III / Figure A.1: CESE-13 Composition of Foreign Bank Claims on Nonbank Private and Banking Sectors, by Host Country (chart series description)
- Host countries covered (CESE-13): Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russia, Slovak Republic, Turkey, Ukraine.
- Figures present time-series composition (In percent of GDP) across dates: Mar-05, Jun-05, Sep-05, Dec-05, Mar-06, Jun-06, Sep-06, Dec-06, Mar-07, Jun-07, Sep-07, Dec-07.
- Components shown in each chart: Local claims of local banks; Local claims of LAFBs in local currency; Local claims of LAFBs in foreign currency; Cross-border claims of foreign banks.
- Sources for figures: Bank for International Settlements; International Financial Statistics, IMF; and authors’ calculations.

*Source: Bank for International Settlements; International Financial Statistics, IMF; and authors’ calculations.*

### APPENDIX IV. CESE-13: COMPOSITION OF SHORT-TERM FOREIGN BANK CLAIMS ON THE

### APPENDIX IV. CESE-13: COMPOSITION OF SHORT-TERM FOREIGN BANK CLAIMS ON THE PRIVATE SECTOR, BY HOST COUNTRY

### Scope and data series
- Figure title: CESE-13: Composition of Short-Term Foreign Bank Claims on the Nonbank Private and Banking Sectors, by Host Country (In percent of GDP).
- Time coverage on charts: Mar-05, Jun-05, Sep-05, Dec-05, Mar-06, Jun-06, Sep-06, Dec-06, Mar-07, Jun-07, Sep-07, Dec-07.
- Y-axis tick values shown on charts: 0, 10, 20, 30, 40, 50 (percent of GDP).
- Three claim categories plotted for each sector and country:
  - Local claims of LAFBs in local currency
  - Local claims of LAFBs in foreign currency
  - Cross-border claims of foreign banks
- Two host-country sectors shown separately for each chart:
  - Nonbank Private Sector
  - Banking Sector
- Data sources: Bank for International Settlements; International Financial Statistics, IMF; and authors’ calculations.

### Host countries covered (figures presented for each)
- Bulgaria
- Croatia
- Czech Republic
- Estonia
- Hungary
- Latvia
- Lithuania
- Poland
- Romania
- Russia
- Slovak Republic
- Turkey
- Ukraine

### Chart structure and interpretation guidance
- For each country, two time-series stacked/segmented charts present claim composition for:
  - Nonbank Private Sector (percent of GDP, 0–50 scale)
  - Banking Sector (percent of GDP, 0–50 scale)
- Each chart distinguishes claims by instrument/currency and by residency of the lending bank:
  - “Local claims of LAFBs in local currency” (local affiliates of foreign banks in local currency)
  - “Local claims of LAFBs in foreign currency” (local affiliates of foreign banks in foreign currency)
  - “Cross-border claims of foreign banks” (claims booked cross-border)
- The common axis and identical time points across countries facilitate cross-country comparisons of:
  - Relative importance of local-currency versus foreign-currency lending by local affiliates of foreign banks.
  - Size of cross-border claims relative to local-claims components.
  - Differences between exposure to the nonbank private sector and to the banking sector.

### Key visual reference points available from the figures
- Uniform percent-of-GDP reference grid (0, 10, 20, 30, 40, 50) for all country-sector charts.
- Uniform quarterly timestamps from Mar-05 through Dec-07 for trend assessment.
- Consistent legend across all charts specifying the three claim categories.

*Sources: Bank for International Settlements; International Financial Statistics, IMF; and authors’ calculations.*

### APPENDIX V. CESE-13: A QUANTIFICATION OF FOREIGN BANK CLAIMS ON THE PRIVATE

### APPENDIX V. CESE-13: A QUANTIFICATION OF FOREIGN BANK CLAIMS ON THE PRIVATE SECTOR, BY HOME AND HOST COUNTRIES

### Overview
- Content comprises tabulated quantifications (end-2007) of foreign bank claims by home and host countries for:
  - Short-term foreign bank claims on the nonbank private sector (Table A.2).
  - Short-term foreign bank claims on the banking sector (Table A.3).
  - Longer-term foreign bank claims on the nonbank private sector (Table A.4).
  - Longer-term foreign bank claims on the banking sector (Table A.5).
- Indicators reported include: LC LC (local claims of LAFBs in local currency), LC FC (local claims of LAFBs in foreign currency), XBC (cross-border claims), amounts in millions of U.S. dollars, and percentages (In percent of host GDP; In percent of home GDP).
- Sources cited in the tables: Bank for International Settlements; International Financial Statistics, IMF; and authors’ calculations.
- Note included in the source: "LC LC = local claims of LAFBs in local currency; LC FC = local claims of LAFBs in foreign currency; XBC = cross-border claims."

### Table A.2 — CESE-13: Short-Term Foreign Bank Claims on the Nonbank Private Sector, by Home and Host Countries, as at End-2007
- Total (In millions of U.S. dollars): 3,0052,3323,1718,5087,0002,9062,90612,81128,684-1,478    11,68938,8969641,0712,6614,696
- Total (In percent of host GDP): 7.45.87.821.012.45.15.122.716.0-0.86.521.74.44.912.321.7

- Additional aggregate block (In millions of U.S. dollars): 7,1903,6179,64720,4551,8633,6862,3937,9422,0323412,4634,83619,3275,2658,20732,799
- Additional aggregate block (In percent of host GDP): 5.12.56.814.46.713.38.728.75.20.96.312.44.41.21.97.5

- Further aggregate block (In millions of U.S. dollars): 13,2729,189    14,19136,65214,3114,31245,49864,1219,940-294,09314,00413,4585,44720,47639,381
- Further aggregate block (In percent of host GDP): 7.95.58.521.91.10.33.54.913.00.05.318.22.00.83.05.8

- Consolidated totals (In millions of U.S. dollars): 4,0761697,61411,859125,12236,829135,008296,959
- Consolidated totals (In percent of host GDP): 2.90.15.48.43.81.14.18.9

### Table A.3 — CESE-13: Short-Term Foreign Bank Claims on the Banking Sector, by Home and Host Countries, as at End-2007
- Total (In millions of U.S. dollars) [first aggregate block]: 6495036851,8371,8977872,2324,9176,238-3212,5428,4583734141,0291,815
- Total (In percent of host GDP) [first aggregate block]: 1.61.21.74.53.41.44.08.73.5-0.21.44.71.71.94.78.4

- Additional aggregate block (In millions of U.S. dollars): 2,7141,3663,6427,7226841,3538782,9166351077701,5115,9661,6252,53310,124
- Additional aggregate block (In percent of host GDP): 1.91.02.65.42.54.93.210.61.60.32.03.91.40.40.62.3

- Further aggregate block (In millions of U.S. dollars): 5,1633,5755,52114,2596,7092,021    21,32830,0585,621-162,3147,9184,7911,9397,29014,020
- Further aggregate block (In percent of host GDP): 3.12.13.38.50.50.21.62.37.30.03.010.30.70.31.12.1

- Consolidated totals (In millions of U.S. dollars): 2,4891034,6487,24043,92813,45755,411112,796
- Consolidated totals (In percent of host GDP): 1.80.13.35.11.30.41.73.4

### Table A.4 — CESE-13: Longer-Term Foreign Bank Claims on the Nonbank Private Sector, by Home and Host Countries, as at End-2007
- Total (In millions of U.S. dollars) [first aggregate block]: 4,7503,6865,01313,44916,2976,76524,50447,56644,581-2,29718,16860,4533,9154,35110,81119,077
- Total (In percent of host GDP) [first aggregate block]: 11.79.9 12.433.228.812.043.484.224.9-1.310.133.818.120.149.988.0

- Additional aggregate block (In millions of U.S. dollars): 17,3558,73123,28549,3714,0518,0155,20317,2687,0491,1858,54416,77857,08115,55124,23796,869
- Additional aggregate block (In percent of host GDP): 12.26.6 16.434.814.729.018.862.518.03.021.942.913.13.65.622.2

- Further aggregate block (In millions of U.S. dollars): 10,9347,57011,69130,19514,5264,37746,18165,08313,838-405,69719,49515,8666,42124,13946,426
- Further aggregate block (In percent of host GDP): 6.54.57.018.01.10.33.55.018.0-0.17.425.42.30.93.56.8

- Consolidated totals (In millions of U.S. dollars): 3,7341556,97410,862213,97564,469214,448492,892
- Consolidated totals (In percent of host GDP): 2.60.14.97.76.41.96.514.9

### Table A.5 — CESE-13: Longer-Term Foreign Bank Claims on the Banking Sector, by Home and Host Countries, as at End-2007
- Total (In millions of U.S. dollars) [first aggregate block]: 1,0267961,0822,9034,4171,8335,19611,4469,695-4993,95113,1461,5131,6824,1807,375
- Total (In percent of host GDP) [first aggregate block]: 2.52.02.77.27.83.29.220.35.4-0.32.27.37.07.819.334.0

- Additional aggregate block (In millions of U.S. dollars): 6,5523,2968,79118,6391,4872,9431,9106,3402,2033702,6705,24317,6204,8007,48129,901
- Additional aggregate block (In percent of host GDP): 4.62.36.213.15.410.66.922.95.60.96.813.44.01.11.76.8

- Further aggregate block (In millions of U.S. dollars): 4,2542,9454,54811,7476,8092,05221,64830,5097,825-233,22211,0245,6482,2868,59416,528
- Further aggregate block (In percent of host GDP): 2.51.82.77.00.50.21.72.310.20.04.214.40.80.31.32.4

- Consolidated totals (In millions of U.S. dollars): 2,280954,2586,63271,32722,57577,531171,433
- Consolidated totals (In percent of host GDP): 1.60.13.04.72.10.72.35.2

*Sources: Bank for International Settlements; International Financial Statistics, IMF; and authors’ calculations.*

### REFERENCES

### _wp0954 - REFERENCES

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*Source: _wp0954 - REFERENCES*

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