Leverage and currency mismatches: Non‐financial companies in the emerging markets. (6th February 2018)

• Record Type: Journal Article
• Authors: Chui, Michael; Kuruc, Emese; Turner, Philip
• Other Names: Greenaway David guestEditor.
• Is Part Of: World economy. Volume 41:Number 12(2018)
• Page Start: 3269
• Page End: 3287
• Publication Date: 2018-02-06
• Subjects: central bank -- currency mismatches -- leverage -- profitability; International economic relations -- Periodicals; 330
• DOI: 10.1111/twec.12627
• Languages: English
• ISSNs: 0378-5920

Abstract

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.