Leverage and Currency Mismatches: Non‐Financial Companies in the Emerging Markets

19 Pages Posted: 18 Dec 2018

See all articles by Michael Chui

Michael Chui

Bank for International Settlements (BIS)

Emese Kuruc

Bank for International Settlements (BIS)

Philip Turner

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: December 2018

Abstract

Growing currency mismatches in the emerging market economies (EMEs) since 2010 have been driven by non‐financial companies. Their financing conditions were greatly eased by lower policy rates and a huge expansion in central bank balance sheets in major advanced economies. This has allowed these companies to increase their gearing, notably by greater foreign currency borrowing, thereby greatly increased the risk of currency mismatches. Microeconomic data show that it was not only companies providing tradable goods and services but also those producing non‐tradable goods which have increased their foreign currency borrowing. The across‐the‐board decline in EME companies’ profitability from mid‐2010 to mid‐2015 brought to light significant vulnerabilities and appeared to have constrained business fixed investment, and therefore growth, in the near term. But the strong external asset positions of the official sector in most EMEs will help the authorities cope with these challenges.

Keywords: central bank, currency mismatches, leverage, profitability

Suggested Citation

Chui, Michael and Kuruc, Emese and Turner, Philip, Leverage and Currency Mismatches: Non‐Financial Companies in the Emerging Markets (December 2018). The World Economy, Vol. 41, Issue 12, pp. 3269-3287, 2018, Available at SSRN: https://ssrn.com/abstract=3302793 or http://dx.doi.org/10.1111/twec.12627

Michael Chui (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Emese Kuruc

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Philip Turner

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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