US among 20 economies given warning by S&P By George Graham and Edward Luce
The US is among 20 financial systems labelled "vulnerable to a credit bust" in an analysis by Standard & Poor's, the credit rating agency.
S&P said domestic lending in the US had grown rapidly, while non-performing loans had also risen. Given the length of the economic upswing, commercial loan portfolios were likely to have been built on overly optimistic projections, while consumer debt also remained at high levels.
"A sharp correction in the stock market could lead to a hard landing for the economy and, thus, for the banks' portfolios," S&P warned.
The agency voiced similar concerns over several other economies, including Ireland, where some of the private sector was relying on low interest rates to enable it to keep repaying its debts, and Norway, where private sector lending had jumped from 65 per cent of gross domestic product in 1996 to an estimated 81 per cent this year.
China remains on S&P's list of systems showing visible signs of weakness.
Problem loans were expected to get worse and the cost to the government of recapitalising the country's banks could exceed 40 per cent of GDP.
Turkey's position had deteriorated, with banks vulnerable because of their large holdings of government debt and being overexposed to foreign exchange risk.
S&P estimated the total open position of Turkish banks was close to $10bn in the middle of this year.
S&P said the number of sovereign debt defaults last year fell to the lowest level since 1982, in spite of Ecuador becoming the first country to default on its bond obligations.
But the rating agency, which said that at $102bn [E101bn] the volume of defaulted debt last year was the same as in 1998, predicted that sovereign defaults would rise sharply over the next 10 years.
This was partly because Ecuador and Pakistan had broken the taboo on sovereign bond defaults, a trend encouraged by the Paris Club of official creditors to promote "burden-sharing" with the private sector in the event of debt reschedulings.
The expected rise was also likely to be boosted by the growing number of "speculative grade" emerging markets raising debt in the international bond markets.
Until recently, most emerging markets relied on international bank loans for debt-raising.
The 28 sovereign defaults in 1999, mostly on bank loans, were well below the 50 to 60 a year recorded between 1986 and 1993, said the agency.
It expected the sovereign default rate to remain low in 2000, owing to the recent stabilisation of the international capital markets, before rising gradually as less creditworthy borrowers came to the market.