Credit Growth in Latin America: Financial Development or Credit Boom?
IMF Working Papers, May 10, 2013
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- Credit Growth in Latin America: Financial Development or Credit Boom?
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Bibliographic details
- Authors: Niels-Jakob H Hansen, Olga Sulla
- Published: May 10, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484390627.001
Summary
- Banking credit to the private sector in Latin America has on average increased by 7 percent of GDP from primo 2004 to ultimo 2011.
- Real credit in some countries grew by up to 20 percent per year.
- The paper documents and analyzes patterns of credit growth in 18 countries in Latin America and uses econometric methods to determine whether it indicates financial deepening or poses risks of credit booms.
- The strongest credit growth occurred for consumption and mortgages within the household sector and for construction within the corporate sector.
- Credit has de-dollarized in most countries and there are some signs of maturity lengthening.
Methods and Assessment
- Two different methods are applied to assess whether recent credit growth is excessive:
- HP-filters: Finds that credit-to-GDP levels in a number of countries are above their long-term trend.
- Panel co-integration approach: Estimated on 107 high and mid-income countries to model credit-to-GDP levels; actual levels are compared with model predictions.
- Findings from comparisons indicate that some countries in Latin America show significant and positive deviations from predicted credit-to-GDP levels, indicating a certain level of risk in recent credit developments.
Key Findings and Risks
- Enumerated findings:
- Average increase in banking credit to the private sector: 7 percent of GDP (primo 2004 to ultimo 2011).
- Peak real credit growth in some countries: up to 20 percent per year.
- Strongest sectoral credit growth: consumption and mortgages (household sector); construction (corporate sector).
- De-dollarization of credit in most countries.
- Some signs of maturity lengthening of credit.
- Evidence of credit-to-GDP levels above long-term trend in several countries (HP-filter results).
- Significant positive deviations from model-predicted credit-to-GDP levels for some Latin American countries (panel co-integration results).