Surging profits during the past two years boosted the capital cushion of developing-nation banks. Lenders in the MSCI BRIC Index have an average Tier 1 capital ratio of 11.1 percent, up from 10.3 percent in 2009, according to data compiled by Bloomberg. That compares with the 11.8 percent average for banks in the MSCI World Index for developed countries. Banco Bradesco SA, Brazil's second-largest lender by market value, has a Tier 1 ratio of 14.7 percent, data compiled by Bloomberg show.
"Brazilian banks are well-capitalized," Will Landers, who runs Latin America equity funds for BlackRock Inc., the world's largest money manager, said in a July 5 interview on Bloomberg Television. "We're really not worried about any type of banking crisis."
The MSCI BRIC index gained 1 percent at 12:39 p.m. in London, paring this year's decline to 2.8 percent. The MSCI World index rose 0.6 percent today, extending its 2011 advance to 2.7 percent.
Bad Debt
Policy makers have already taken steps to slow credit growth. Brazil raised reserve and capital requirements on some loans in December, doubled to 3 percent a tax on consumer credit in April and required banks to hold more capital against certain credit-card loans last month. The Reserve Bank of India has asked lenders to set aside more cash for bad loans and double provisions for restructured debt.
China raised banks' reserve requirements 12 times since the beginning of 2010. The China Banking Regulatory Commission told lenders last month that they haven't set aside sufficient funds to cover losses on loans to local governments and ordered them to accelerate debt collection, a person with knowledge of the matter said.
"China as a country has the capacity to be able to absorb" increased defaults, Piyush Gupta, CEO of Singapore- based DBS Group Holdings Ltd., southeast Asia's largest bank, said in a July 19 interview on Bloomberg Television.
China's leaders maintained economic growth of at least 7.6 percent in the late 1990s even after bad debt jumped to more than 40 percent of total loans, according to data compiled by Bloomberg and "Red Capitalism" authors Carl E. Walter and Fraser J.T. Howie.
Struggle to Grow
This time around emerging countries may struggle to grow out of their debt problems because demand from the U.S. and Europe is slowing, said Richard Duncan, a partner at Singapore- based Blackhorse Asset Management who was a consultant to the IMF during the Asian financial crisis and has worked for the World Bank as a financial-industry specialist.