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Cross-Border positions, also referred to as external positions, are most likely for any organization that goes global. Suppose your organization has its main office in, for example, the United States, with branches in Europe and/or Asia. In that case, you will have asset and liability positions of reporting banking offices outside the US. Cross-border financing helps with international trade by providing a source of funding, enabling businesses to compete globally and beyond their domestic borders. This sometimes requires the lender or provider to act as an agent between companies, suppliers, and end-customers. Examples are cross-border loans, letters of credit, repatriable income, or bankers acceptances (BA).
With the global pandemic forcing organizations to change strategies or even their core business, many have expanded globally or relocated to another country. We have taken a closer look at the changes in cross-border positions worldwide by viewing outstanding claims and liabilities of Q3 2020 in trillions of US dollars.
Between Q3 2019 and Q3 2020, cross-border claims on developed countries increased by 1.75 trillion USD, with the liabilities increasing by 1.46 trillion USD.
Claims in developed countries, otherwise called advanced economies, have declined. Intragroup positions partly drove the movements from one year earlier. The decline is centered on related offices, especially on those in the US, due to the unwinding of central bank dollar swap lines.
Non-bank financial institutions (NBFIs) were involved with the decline; claims on the UK, the Netherlands, Luxembourg, France and Italy declined, with most of them vis-à-vis NBFIs. Another partly offset influence was the increase in Japan and Germany’s claims, notably their NBFIs and resident banks.
During the pandemic, creditor banks in developed countries and offshore centers have reported a large contraction in their cross-border claims on emerging markets and developing economies (EMDE). During Q2 and Q3 of 2020, global cross-border shares on emerging markets and developing economies declined by 95 billion USD. Major developed countries and offshore creditors – such as UK, US, Hong Kong, Singapore and Japan banks – reduced their lending to developing countries by 97 billion USD in these six months.
The Q3 2020 claims have increased by 0.07 trillion USD in the offshore centers, with the Q2 2020 liabilities increasing by 0.15 trillion USD.
Compared to claims on developed countries, claims on offshore centers expanded by 41 billion USD. Especially Hong Kong SAR and the Cayman Islands have been doing well. More than half of Hong Kong’s increase was intragroup claims, with Singapore and Bermuda having the least growth.
Emerging market and developing economies
The Q3 2020 claims increased 0.03 trillion USD compared to Q3 2019. The Q3 2020 liabilities, compared to Q3 2019, have increased as well, with 0.13 trillion USD.
Cross-border claims on emerging markets and developing economies continued to fall, driven again by claims on Latin America and the Caribbean, with the year-on-year growth remaining negative. Just as one year earlier, these movements were partly driven by intragroup positions. Claims on non-financial corporations in major economic regions of Brazil, Mexico, Chile, Colombia and Argentina declined the most.
As mentioned earlier, creditors reported a large contraction in cross-border claims in developing countries. However, simultaneously, creditor banks within these countries reported a modest expansion. In contrast to the reduced lending of 95 billion USD, banks in EMDE booked a 26 billion USD increase in cross-border claims during Q2 and Q3 2020. The banks that led this expansion in emerging Asia-Pacific were mainly China and Chinese Taipei.
Before you expand or start abroad, it is helpful to know what parts of the world are convenient for your business. Having cross-border positions in countries such as the US, the Netherlands, France, Germany, and Japan can be rewarding; however, even though they work well together, each country and/or state has individual rules. Meanwhile, China and Russia have many business opportunities, but you must have high insider knowledge to use and find all the business possibilities. The UK has always played a big part in the global economy; however, much has changed due to Brexit. In case you want a professional to help you with this, feel free to send us a message. As the saying goes: a good beginning is half the work.
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