In 2003 the Korean banking system suffered a near collapse as a result of bad credit card debt. Like many emerging markets credit cards were new to Korea. When they first were issued, banks competed strongly with each other sending out enormous quantities of credit cards. Consumers unused to the cards quickly ran up unsustainable debts. With an inefficient legal system, Korean credit card companies and banks had problems collecting the debts. The result was a severe banking crisis, which is still being played out. As recently as 2005, 15% of the working population still had large debts.
There are problems in other countries, specifically Russia. The Russian banking system has always had a shaky reputation. It is held together only by the government bank, Sberbank, which dominates the market. Recently in Russia there has been a consumer credit boom. Russian Standard Bank, which has 40% of the consumer market, has been issuing 15 to 20,000 credit cards a day and now has more than 20 million customers.
To finance that boom, Russian banks have borrowed heavily on international finance markets. According to the Financial Times, (9/11/2007) "More than 65 per cent of its total financing comes from international markets. Just 5 per cent of its financing currently comes from private deposits".
In August this caused a mini liquidity crisis. The same thing happened to Northern Rock, a UK bank, last week.
In other words, this is a global market place. What happens in the US does not stay in the US. The last few years of loose money has increased the appetite for risk around the world. When that trend goes into reverse a lot of rotten loans will appear everywhere. The further decline in the US real estate market will stress the American market, but as liquidity drys up, like the receding tide, a lot of wrecks will begin to appear all over the world.
William Gamble
EMERGING MARKET STRATEGIES
Suite 1D
1990 Pawtucket Ave
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Tel: 401-272-8906; Fax:401-272-8139; Cell 401B829-6729
Internet: william@emergingmarketstrategies.com
http://www.emergingmarketstrategies.com/
