Retail lending boom in emerging markets driving banking expansion : S&P

Mumbai:
25 January 2006

In its report, titled, Full Steam Ahead For Retail Lending In Emerging Markets, the report notes that in the so BRIC countries — Brazil, Russia, India, and China — loans to individuals for housing, car purchases, and other consumer spending more than tripled from 2001 to 2005, from $145 billion to an estimated $477 billion.

This amount remains small, however, compared with retail lending in mature economies, where loans to individuals in Germany alone totalled approximately $1.7 trillion in 2005.

"The speed of the expansion and enormous potential in emerging markets are remarkable," said Standard & Poor's credit analyst Scott Bugie.

BRIC retail lending soared at almost 40 per cent weighted average annual growth in the four years to 2005. Extrapolate that rate over the next four years starting January 2006, and retail loans in the BRIC countries would grow to $1.8 trillion by year-end 2009.

"We believe that such growth is not hypothetical, but a real possibility that is making domestic and international financial services groups salivate at the business prospects," said Bugie. "Our base scenario is for loans to individuals in the BRIC countries to grow 20 per cent to 30 per cent a year in the medium term."

Looking beyond the BRIC countries, Standard & Poor's sees that the trend is truly global - duble-digit growth (in real terms) characterises retail lending in the banking sectors of Central and Eastern Europe, the Middle East, Latin America, and Southeast Asia.