The long, lazy summer months are upon us, and banks who were already reluctant to lend to businesses for fear of not getting their money back may be even more unwilling. Crises have a habit of breaking out in summer — the Asian financial crisis started in July 1997, the Russian rouble crisis in August 1998 and the global sub-prime crisis in August 2007.
In Russia, which has already suffered many corporate defaults this year, around $5 billion in corporate debt is maturing by the end of the third quarter and may need refinancing, adding to pent-up demand for loans.
Money markets are starting to show an increasing pile-up in short-term deposits, as banks would rather keep their cash there than lend to risky enterprises.
In Saudi Arabia, where huge businesses Saad Group and Ahmad Hamad Algosaibi & Bros are restructuring their debt, overnight rates have been falling into negative territory, due to the huge demand for short-term cash.
In Kazakhstan, where local banks BTA and Alliance are also restructuring debt, weak bank lending and a skew to cash has pushed short-term money market rates down to early 2008 levels, according to Commerzbank analyst Luis Costa.
Short-term liquidity — is there too much around, and could it signal more troubles ahead?
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There “is” too much short term liquidity out there, and if it is not soaked up, properly, and soon, then the inflation monster will raise it’s ugly head once again and attack the battered North American work force.
I agree that summer is sometimes an incubator for crisis (swine flue comes to mind) but this summer, there is a stock market rally building.
Russia has proven time and again that it has a lot more crime bosses than CEO’s. More crooked bureaucrats than proper courts of law. Western companies looking to invest there do so at great risk. There are too many safer countries to invest in, at least until King Putin is replaced by a proper, functioning democracy, supported by an honest Judiciary.
- Posted by Harold