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Risks related to EME corporate balance sheets: the role of leverage and currency mismatch

Author

Listed:
  • Michael Chui
  • Ingo Fender
  • Vladyslav Sushko

Abstract

Corporates in many EMEs have taken advantage of unusually easy global financial conditions to ramp up their overseas borrowing and leverage. This could expose them to increased interest rate and currency risks unless these positions are adequately hedged. The key question is whether EME corporate balance sheets have become more susceptible to shocks. Greater corporate exposures could, in turn, spill over into vulnerabilities for both local banks and the financial system more broadly. Shocks to interest or exchange rates could generate damaging feedback loops if credit risk concerns were to prevent existing bank or bond market funding from being rolled over.

Suggested Citation

  • Michael Chui & Ingo Fender & Vladyslav Sushko, 2014. "Risks related to EME corporate balance sheets: the role of leverage and currency mismatch," BIS Quarterly Review, Bank for International Settlements, September.
    • Handle: RePEc:bis:bisqtr:1409f
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    References listed on IDEAS

    as
    1. Philip Turner, 2014. "The global long-term interest rate, financial risks and policy choices in EMEs," BIS Working Papers 441, Bank for International Settlements.
    2. Powell, Andrew, 2014. "Global Recovery and Monetary Normalization: Escaping a Chronicle Foretold?," IDB Publications (Books), Inter-American Development Bank, number 6417, May.
    3. Koichiro Kamada & Ko Miura, 2014. "Confidence Erosion and Herding Behavior in Bond Markets: An Essay on Central Bank Communication Strategy," Bank of Japan Working Paper Series 14-E-6, Bank of Japan.
    4. Anthony Rush & Dena Sadeghian & Michelle Wright, 2013. "Foreign Currency Exposure and Hedging in Australia," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 49-58, December.
    5. Stefan Avdjiev & Elod Takáts, 2014. "Cross-border bank lending during the taper tantrum: the role of emerging market fundamentals," BIS Quarterly Review, Bank for International Settlements, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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