Slowdown looms as global lending growth drops to 3%

And Hong Kong is in the highest category of macro-risk due to bad lending.

Here's more from Fitch Ratings:

"Fitch forecasts global bank credit to weaken to just 3% in real terms this year. Nonetheless, a handful of emerging markets have been experiencing a combination of rapid credit growth and asset price inflation that has been associated with bubbles in the past," says Richard Fox, Senior Director in Fitch's Sovereign group.

Last year's 4% real credit growth and this year's forecast 3% are well below a pace that would cause renewed concerns about overlending. Rapid lending growth is confined to a handful of emerging markets (EM), some of which move into Fitch's higher Macro-prudential risk category (MPI 3) in this report.

Credit growth in developed markets remains stagnant and is forecast to slow in all EM regions this year, notwithstanding continued rapid nominal lending growth in some of the larger countries. The recovery of credit growth seen in 2010 to 5% has not been sustained. Amongst EM regions, growth is forecast to remain fastest in Asia at 9%, but this is down from 11% in 2011.

Colombia and Lebanon drop out of the MPI 3 category due to data revisions. Countries that remain MPI 3 based on past triggers are Argentina, China, Cyprus, Hong Kong, Indonesia, Sri Lanka and Turkey.

Because of data weaknesses in some of the new countries added, Fitch is introducing a new designation of MPI 2*. The asterisk indicates where an MPI score is based on real lending growth and just one other indicator (usually the real exchange rate). This is because where lending growth is fast enough to trigger an MPI 2 score, an MPI 3 score might be triggered if the additional indicators were available.

Despite continuing sluggish credit growth, credit/GDP on average in developed countries shows little sign of falling significantly. Over three-quarters of these countries still have scores of at least MPI 2, denoting above trend credit/GDP over the past three years. Given historical rising trends, credit/GDP is nevertheless falling relative to trend and around half of developed markets had below trend credit/GDP in 2011. MPI scores in the developed world will gradually fall therefore. Only two developed countries remain MPI 3, Cyprus and Hong Kong.

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