BIS sees danger signs in property prices and credit growth

PUBLISHED : Monday, 30 June, 2014, 1:40am
UPDATED : Monday, 30 June, 2014, 1:40am

Regulators should not dismiss "worrying" early signs of unsustainable property price and credit growth, which could leave borrowers vulnerable to interest rate rises or sharp downturns, the Bank for International Settlements said yesterday.

The global forum for central banks said rock-bottom official interest rates, cut to revive sluggish economies, had contributed to a boom in lending and real estate prices in some countries.

While the European Central Bank has cut interest rates to record lows and decided to pump money into the euro-zone economy, the United States Federal Reserve has hinted at rate rises from next year.

"Several early warning indicators signal that vulnerabilities have been building up in the financial systems of several countries," the BIS said in its annual report.

While no early warning indicator was completely reliable, dismissing such readings as inappropriate would be too easy, it said.

In many emerging market economies, measuring the current ratio against its long-term trend, the credit-to-GDP gap was "well above the threshold that indicates trouble", the Basel-based BIS said.

Rising rates would push the debt-service ratios - the share of income used to service debt - of several countries into critical territory, it said, with borrowers in China seen as most vulnerable.