Navigating through the Uncertainty: The Potential Impact of Ukraine-Russian Crisis

BBVA Research March 2014

2

Key Takeways

Market impact so far limited and confined to the EM Europe region Europe is dependent on Russian Energy… but Russia needs Europe (constraint)

Ukraine bank links with Europe are not specially high.

Spill overs to the Russian Banking system could also spark into the EM Europe

banking systems. The dependency model could facilitate the impact to the European banks (Austria, Germany, Italy)

Uncertainty about potential scenarios is still high but there is no economic incentives for Russia for a crisis spiral

There are several transmission channels of the crisis. The trade & energy channel is relatively benign. We would need to enter into Global Risk Aversion and Russian Meltdown to really feel the pain

EM Europe has particular risks among the Emerging Markets vulnerability. The Currency Mismatch (FX denominated loans) problem poses special risks to the region

3

Index

1. The Market Reaction to the crisis

2. The Energy Dependence Issue

3. The Bank Interconecction

4. Transmission Channels and Potential Impact

5. Vulnerabilities in EM and Eastern Europe

4

EMBI Global spread (change since Feb 4, bps) Source: Haver and BBVA Research

Equity markets (change since Feb 21, bps) Source: Bloomberg and BBVA Research

Market synchrony to the event cannot be called yet contagion but there is enormous

room to the downside… FX vs. USD Porcentual change since Feb 21) Source: BBVA Research and Bloomberg

-5 -3 -1 1 3

ChinaHong KongPhilippines

TaiwanThailand

KoreaMalaysia

IndiaIndonesia

Chile#N/A

ArgentinaVenezuela

PeruMexicoTurkeyUkraineRussiaPoland

BulgariaCzech Republic

HungaryRomania

ADXY - AsiaLACI - Latam

JapanEuroGBP

Dollar (DXY)USD appreciation

-10 -5 0 5 10

Shangai CompMalaysia

HK - Hang SengIndonesia

KoreaTaiwan

ThailandIndia

ArgentinaPeru

MexicoBrazil

VenezuelaChile

ColombiaTurkeyRussia

Czech RepublicHungaryRomania

PolandUkraine

Germany DAXEuro Stoxx 50

Euro Stoxx 600France CACSpain IBEX

Italy MIBIreland

Portugal PSIGreece ASE

Japan NikkeiUS DJIAUS S&P

US NASDAQ

-10.9%

+31.9%

-100 -50 0 50 100

Chile

Colombia

Peru

Mexico

Brazil

Venezuela

Argentina

Embi Ukraine

Russia

Poland

Hungary

Romania

Turkey

china

India

Indonesia

-127

-121

Ukraine-Russia crisis “Spill Overs” still muted and highly concentrated in EM Europe…

5

Banks CDSs (change since 23 Feb) Source:Bloomberg, DataStream & BBVA

Some Russian and Western European Banks already affected but mildly..

-10

0

10

20

30

40

50

60

Gazpro

mban

k

Ru

ssia

n A

gric

ultu

ral B

ank

VT

B B

an

k

Vneshe

co

nom

ban

k

Ra

iffein

se

n

Sberb

ank

Santa

nde

r

Socie

té G

en

era

le

BN

P P

arib

as

iTra

xx S

en

BB

VA

iTra

xx S

ub

Un

iCre

dit

6

Commodities : Food Prices (normalized as Jan2014=100) Source Bloomberg and BBVA Research

So far, food and gold prices increases higher than energy…

Commodities : Energy Prices (normalized as Jan2014=100) Source Bloomberg and BBVA Research

90

95

100

105

110

115

Yanukovich ousted Gold Corn Wheat

80

85

90

95

100

105

Yanukovich ousted Natural Gas Brent

7

Equity implied volatility Source:Bloomberg & BBVA Research through EPFR data

10

15

20

25

30

35

40

10

15

20

25

30

35

40

Eurostox50 implied volat ility (v2X)

S&P50 0 implied volatility (VIX)

EM ETF volat ility

Global Risk Aversion has reacted somehow… but at different levels …

8

###

###

###

0.50

1.20

3.00

Strong Capital Outlows (between -1 % and -2 %)

Moderate Capital Outflows (between 0 and -1 %)

Moderate Capital Inflows (between 0 and 1 %)

Strong Capital Inflows (between 1 % and 2 %)

Booming Capital Inflows (greater than 2 %)

Sharp Capital Outflows (below -2 %)

Singapore

Idio. Factors behind Jan-Feb 14 (country Flows over Total Assets, average) Source: BBVA Research through EPFR

BBVA Country Portfolio Flows Map(Country Flows over total Assets )

Source: BBVA Research through EPFR data

USA # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Japan # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Canada # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

UK # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Sweeden # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Norway # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Denmark # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Finland # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Germany # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Austria # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Netherlands # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

France # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Belgium # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Italy # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Spain # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Ireland # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Portugal # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Greece # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Poland # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Czech Rep # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Hungary # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Turkey # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Russia # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Mexico # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Brazil # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Chile # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Colombia # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

PeruPeru # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Argentina # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

China # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

IndiaIndia # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Korea # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Thailand # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Indonesia # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Philippines # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Hong Kong # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Singapore # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

2012 2013 2014

G4

Weste

rn E

uro

pe

EM

Eu

rLA

TA

MA

sia

2008 2009 2010 2011 -2.0 0.0 2.0 4.0

USA

Japan

Canada

UK

Sweeden

Norway

Denmark

Finland

Germany

Austria

Netherlands

France

Belgium

Italy

Spain

Ireland

Portugal

Greece

Poland

Czech Rep

Hungary

Turkey

Russia

Mexico

Brazil

Chile

Colombia

Peru

Argentina

China

India

Korea

Thailand

Indonesia

Philippines

Hong Kong

Singapore

-2.0 0.0 2.0 4.0

USA

Japan

Canada

UK

Sweeden

Norway

Denmark

Finland

Germany

Austria

Netherlands

France

Belgium

Italy

Spain

Ireland

Portugal

Greece

Poland

Czech Rep

Hungary

Turkey

Russia

Mexico

Brazil

Chile

Colombia

Peru

Argentina

China

India

Korea

Thailand

Indonesia

Philippines

Hong Kong

Singapore

Portfolio Flows Jan-Feb 14 (country Flows over Total Assets, average) Source: BBVA Research through EPFR

No serious regional capital flows reversals… Idiosincratic Factors playing a higher role now than before…

9

Index

1. The Market Reaction to the crisis

2. The Energy Dependence Issue

3. The Bank Interconecction

4. Transmission Channels and Potential Impact

5. Vulnerabilities in EM and Eastern Europe

10

Europe depends on Russian Gas…but Russia has something to loose in the crisis…

Russia has more

stake to loose

than Europe in

that case as

61% of total

Russian oil

exports flow into

Europe but

Europe relies

only partially on

Russia (30%)

EU Natural Gas Imports Source Europe’s Energy Security:Options and Challenges to Natural Gas Supply Diversification

11

Russia has more stake to loose than Europe in that case as 61% of total Russian

oil exports flow into Europe but Europe relies only partially on Russia (30%)

North Stream

South Stream

Nabucco & Others

A big part of the Gas is flowing through Ukraine but there arealso alternative routes for Russian Gas …

12

EU Energy Depedence of Russian Gas* Source Europe’s Energy Security:Options and Challenges toNatural Gas Supply Diversification

World Russian Gas Dependence Source Eurostat BP

Baltics and Emerging Europe would be the most affected… but central europe would feel some pain…

13

Index

1. The Market Reaction to the crisis

2. The Energy Dependence Issue

3. The Bank Interconecction

4. Transmission Channels and Potential Impact

5. Vulnerabilities in EM and Eastern Europe

14

Issuer/Borrower EUR USA UK JAP

Systemic

Relevance*

EUR 60% 10% 7% 6% 44%

SWISS 43% 9% 13% 4% 2%

UK 52% 17% 6% 10%

USA 57% 18% 20% 27%

CAN 32% 22% 18% 11% 2%

JAP 31% 29% 9% 4%

O.DEV 49% 7% 16% 16% 19%

China 32% 8% 19% 7% 3%

POL 86% 6% 4% 2% 1%

RUSS 73% 13% 6% 1%

TURK 72% 11% 4% 1%

UKR 89% 6% 0%

(*as % over Total foreign claims)

0.62%

0.00%0.17%

0.07%

0.00%

0.10%

0.06%0.01%

0.06%0.00%

0.05%0.03%

0.11%

Russia: Borrowing Structure and Systemic Relevance* Source: BIS, (*) calc as % of total world liabilities

IIP Relative Matrix: Share of Liabilities by issuer and borrower -% of the liabilities issued Source: BIS Table 9B: Consolidated foreign claims of reporting banks - immediate borrower basis

The crisis can shift the focus to West Europe Banks links with the region and their particular “banking” model…

15

Market Share of Foreign Banks in Central Eastern Europe (% total assets) Source:Raiffeisen

Market Share of Foreign Banks in CIS countries (% total assets) Source:Raiffeisen

The crisis can shift the focus to West Europe Banks links with the region and their particular “banking” model

US and West European Banks

16

42%

54%

11%18%

8%

12%40%

17%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008 sep-13

Non-fussian foreign bank Russian Bnaks

Privately-onwed Ukrainian Bank State-owned banks

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0

Raiffeisen Sberbank VEB Unicredit BNP Paribas OTP VTB Bank

Austria Russia Russia Italy France Hungary Russia

Market structure of Ukraine's banking sector Source: Raiffeissen, SNL and each bank

Direct exposure of foreign banks to Ukraine (€bn) Source: Raiffeissen, SNL and each bank

But Russian Banks will be affected too…

17

0,0%

1,0%

2,0%

3,0%

4,0%

5,0%

6,0%

OTP VEB Raiffeisen Sberbank Unicredit VTB Bank BNP Paribas

Hungary Russia Austria Russia Italy Russia France

Bank exposure to Ukraine (as % of 2012 total asset of each bank) Source: Raiffeissen, SNL and each bank

But Russian Banks will be affected too…

4.5 bn

2.0 bn

0.5 bn

3.0 bn

2.3 bn 3.0 bn 2.1 bn

18

Index

1. The Market Reaction to the crisis

2. The Energy Dependence Issue

3. The Bank Interconecction

4. Transmission Channels and Potential Impact

5. Vulnerabilities in EM and Eastern Europe

19

• A negotiated solution (Transitory Impact)

• Conflict confined to Crimea (Risk Aversion)

• Military escalation (Risk Aversion + Russian Meltdown)

Inside the uncertainty: Some alternative scenarios

20

• Ukraine is unlikely to split; a loose federation arrangement is more likely.

• Crimean referendum on autonomy might encourage other south-eastern regions to re-assess their status within Ukraine.

• Moscow might intervene should south-eastern protests escalate and result in significant casualties.

Inside the uncertainty: Some alternative scenarios

Ukraine-Russia Affairs Source: Oxford Analytica

21

Ukraine-Russia potential “Spill Overs” through different channels..

Stock Market Drops

Risk premiums Rise

(US-EZ-Jap bond yields drop)

US$ strenghthen

Food and Gold price rises Metal Prices drops

GDP Growth & Recovery Expectations Drops

Inflation Rises Capital OutFlows

To Safe Havens

Military intervention

Russia & Ukraine

Rise in Gas & Oil Prices

EM Currencies Depreciation + Monetary Response

EM Currencies Depreciation + Currency Mismatch

Energ

y &

Food

On

fid

en

ce &

Ris

k

Avers

ion

Exte

rnal &

M

oneta

ry

Policy & Currency Mismatch Channel

Confidence & Global Risk Channel

Cost Push Channel

22

0

2

4

6

8

10

12

Me

xico

Ru

ssia

Ve

nez

uel

a

Turk

ey

Bra

zil

Ind

on

esi

a

Ph

ilip

pin

es

Ukr

ain

e

Co

lom

bia

Kaz

akh

stan

Po

lan

d

Leb

ano

n

Ch

ile

Hu

nga

ry

Ch

ina

Pe

ru

Sou

th A

fric

a

Pan

ama

Lith

uan

ia

Cro

atia

Mal

aysi

a

Arg

en

tin

a

Uru

guay

4.3

17.0

34.6

41.1

3.0

Africa

Asia

Europe

Latin America

Middle East

2.7

15.7

35.4

46.3 Africa

Asia

Europe

Latin America

0

5

10

15

Turk

ey

Ru

ssia

Me

xico

Bra

zil

Ve

nez

uel

a

Ph

ilip

pin

es

Ind

on

esi

a

Co

lom

bia

Pe

ru

Pan

ama

Ukr

ain

e

Sou

th A

fric

a

Hu

nga

ry

Cro

atia

Arg

en

tin

a

Ro

man

ia

Bu

lgar

ia

Ecu

ado

r

Emerging Market Bonds (EMBI+) (% index)

Emerging Market Bonds (EMBI+) (% index)

Emerging Market Bonds (EMBI Global)) (% index)

Emerging Market Bonds (EMBI Global)) (% index) 65%

35%

Global Risk Aversion can increase through “margin calls” as Russia is a systemic EM country…

23

-200

-100

0

100

200

300

400

500

600

700

800

2006

2007

2008

2009

2010

2011

2012

2013

2014

-10% (UnderShooting

Phase)

Emerging Markets: Cumulative Net Capital Flows (Cumulative since 2005, US$ bn) Source: BBVA Research, IMF and EPFR

FED

Tap

eri

ng

QE3

+D

rag

ui

EM flows have entered in the “Undershooting” phase … (so less margin to fall) …but unevenly across countries

24

Turkey: Cumulative Net Capital Flows (Cumulative since 2005, US$ bn) Source: BBVA Research, IMF and EPFR

-10

0

10

20

30

40

50

60

70

2006

2007

2008

2009

2010

2011

2012

2013

México: Cumulative Net Capital Flows (Cumulative since 2005, US$ bn) Source: BBVA Research, IMF and EPFR

0

20

40

60

80

100

120

140

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

0

20

40

60

80

100

120

140

160

180

200

2006

2007

2008

2009

2010

2011

2012

2013

2014

Brazil: Cumulative Net Capital Flows (Cumulative since 2005, US$ bn) Source: BBVA Research, IMF and EPFR

+18 %

+12 %

-24 %

EM flows have entered in the “Undershooting” phase but unevenly across countries

0

20

40

60

80

100

120

140

2006

2007

2008

2009

2010

2011

2012

2013

2014

-11 %

Russia: Cumulative Net Capital Flows (Cumulative since 2005, US$ bn) Source: BBVA Research, IMF and EPFR

25

Pro

bab

ilit

y o

f Su

dd

en S

top

(1-ω)

BBVA Research Systemic Sudden Stop* Pressure Map (based on CAC Deficit and Domestic Liability Dollarization) Source: Calvo, Izquierdo y Mejia (2008) and BBVA Research

Colombia Mexico

0% -4% +4% -8% +8% +12% -12%

• Systemic Sudden Stop that take place in conjuntion with a sharp rise in aggregate interest rate spreads. See Calvo, Izquierdo and Mejia (2008)

Bulgaria

Romania Bosnia H

Georgia Bosnia

Belorrusia

The probability of Capital Flows “Sudden Stops” is biased to Emerging Europe given the currency mismatch problem

26

GDP Effects of Ukranian-Russian Crisis Scenarios*

(% from base scenario cumulative 2014-15) Source BBVA Research

Scenario 1: Energy and Trade Shock (short-lived) Scenario 2: scenario 1+ Global Risk Aversión Scenario 3: scenario 2 + Meltdown in Russia

GDP Effects of Ukranian-Russian Crisis Scenarios (OEF) (% difference in Level GDP versus baseline 2015) Source OEF

Energy & Trade shocks will not have significant effects. We would need “severe market distress for risky results. Russia is the Big Looser of the game (constraint)

-4.5

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

US EMU Latam Turkey EasternEurope

Russia

Energy and Trade Channel (ETC)

ETC + Global Risk Aversion (GRA)

ETC + GRA+ Russian MeltDown

27

Index

1. The Market Reaction to the crisis

2. The Energy Dependence Issue

3. The Bank Interconecction

4. Transmission Channels and Potential Impact

5. Vulnerabilities in EM and Eastern Europe

28

Ukraine will need inmediate assistance but institunional problems could limit the effects of the Bail Out…

Ukraine: Current account to GDP Source: BBVA Research

Ukraine: Cover Ratio (Reserves to Foreign short term liabilities) Source: BBVA Research

38%

40%

42%

44%

46%

48%

50%

2010Q1 2011Q1 2012Q1 2013Q1-10

-8

-6

-4

-2

0

2

4

2005 2009 2013

29

Emerging Europe is at the top of EM vulnerability…

Vulnerability Radar: Shows a static and comparative vulnerability for different countries. For this we assigned several solvency , liquidity and macro variables and we reorder in percentiles from 0 (lower ratio among the countries to 1 maximum vulnerabilities.) Furthermore Inner positions in the radar shows lower vulnerability meanwhile outer positions stands for higher vulnerability

Emerging Europe: Vulnerability Radar 2014 (Relative position for the Emerging Market countries. Max Risk=1, Min Risk=0) Source: BBVA Research

Developed: (ST Public Debt/ Total Public Debt) Emerging : (Reserves to ST External Debt) 1: High vulnerability 0: Low vulnerability

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0GDP Growth

Inflation

Unemployment Rate

Structural Deficit (% GDP)

Interest rate-GDP Diferential2013-18

Public Debt (% GDP)

Debt Held by Non Res idents (%total)

Financial Needs (% GDP)

Short T. Debt Pressure*

External Debt (% GDP)

RER AppreciationCurr. Account Deficit (%GDP)

Household credit (%GDP)

Corporate credit (% GDP)

Financial l iquidity(Credit/Deposits)

Private Credit Growth

Real Hous ing Prices Growth

Equity Markets

Political stabil ity

Control of corruption

Rule of law

Emerging Europe 2014

Emerging Europe 2013

Risk Thresholds Emerging 2014

Latam: Vulnerability Radar 2014 (Relative position for the Emerging Market countries. Max Risk=1, Min Risk=0) Source: BBVA Research

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0GDP Growth

Inflation

Unemployment Rate

Structural Deficit (% GDP)

Interest rate-GDP Diferential2013-18

Public Debt (% GDP)

Debt Held by Non Res idents(% total)

Financial Needs (% GDP)

Short T. Debt Pressure*

External Debt (% GDP)

RER AppreciationCurr. Account Deficit (%GDP)

Household credit (%GDP)

Corporate credit (% GDP)

Financial l iquidity(Credit/Deposits)

Private Credit Growth

Real Housing Prices Growth

Equity Markets

Political stabil ity

Control of corruption

Rule of law

Latam 2014

Latam 2013

Risk Thresholds Emerging 2014

30 Risk Thresholds

0

20

40

60

80

100

120

140

Un

ited

Sta

tes

Can

ada

Japan

Aust

ralia

Ko

rea

No

rway

Sw

ed

en

Denm

ark

Fin

lan

dU

KA

ust

ria

Fra

nce

Germ

an

yN

eth

erl

an

ds

Belg

ium

Italy

Sp

ain

Irela

nd

Port

ug

al

Gre

ece

Czech

Rep

Bulg

ari

aC

roatia

Hu

ng

ary

Pola

nd

Ro

man

iaR

uss

iaT

urk

ey

Arg

en

tin

aB

razi

lC

hile

Co

lom

bia

Mexic

oP

eru

Ch

ina

Ind

iaIn

don

esi

aM

ala

ysi

aP

hilip

pin

es

Thaila

nd

Gross Public Debt 2014(% GDP)Source: BBVA Research and IMF

0

50

100

150

200

250

300

Un

ited

Sta

tes

Can

ada

Japan

Aust

ralia

Ko

rea

No

rway

Sw

ed

en

Denm

ark

Fin

lan

dU

KA

ust

ria

Fra

nce

Germ

an

yN

eth

erl

an

ds

Belg

ium

Italy

Sp

ain

Irela

nd

Port

ug

al

Gre

ece

Czech

Rep

Bulg

ari

aC

roatia

Hu

ng

ary

Pola

nd

Ro

man

iaR

uss

iaT

urk

ey

Arg

en

tin

aB

razi

lC

hile

Co

lom

bia

Mexic

oP

eru

Ch

ina

Ind

iaIn

don

esi

aM

ala

ysi

aP

hilip

pin

es

Thaila

nd

External Debt 2014(% GDP)Source: BBVA Research and IMF

-10.0

10.0

30.0

50.0

70.0

90.0

110.0

130.0

150.0

Un

ited

Sta

tes

Can

ada

Japan

Aust

ralia

Ko

rea

No

rway

Sw

ed

en

Denm

ark

Fin

lan

dU

KA

ust

ria

Fra

nce

Germ

an

yN

eth

erl

an

ds

Belg

ium

Italy

Sp

ain

Irela

nd

Port

ug

al

Gre

ece

Czech

Rep

Bulg

ari

aC

roatia

Hu

ng

ary

Pola

nd

Ro

man

iaR

uss

iaT

urk

ey

Arg

en

tin

aB

razi

lC

hile

Co

lom

bia

Mexic

oP

eru

Ch

ina

Ind

iaIn

don

esi

aM

ala

ysi

aP

hilip

pin

es

Thaila

nd

Household Debt 2014(% GDP)Source: BBVA Research and BIS

0.0

50.0

100.0

150.0

200.0

250.0

Un

ited

Sta

tes

Can

ada

Japan

Aust

ralia

Ko

rea

No

rway

Sw

ed

en

Denm

ark

Fin

lan

dU

KA

ust

ria

Fra

nce

Germ

an

yN

eth

erl

an

ds

Belg

ium

Italy

Sp

ain

Irela

nd

Port

ug

al

Gre

ece

Czech

Rep

Bulg

ari

aC

roatia

Hu

ng

ary

Pola

nd

Ro

man

iaR

uss

iaT

urk

ey

Arg

en

tin

aB

razi

lC

hile

Co

lom

bia

Mexic

oP

eru

Ch

ina

Ind

iaIn

don

esi

aM

ala

ysi

aP

hilip

pin

es

Thaila

nd

Corporate Sector Debt 2014(% GDP, excluding bond issuances)Source: BBVA Research and BIS

24

2

17

4

38

3

31

8

10

33

Emerging Europe is at the top of EM vulnerability…

31

0

10

20

30

40

50

60

70

80

90

100

Latv

iaC

roatia

Lith

uania

Georg

iaBulg

aria

.erze

govin

aR

om

ania

Mace

donia

Mold

ova

Ukra

ine

Pola

nd

Turk

ey

Russia

Cze

ch R

.

Uru

guay

Peru

Para

guay

Hondura

sC

hile

Bra

zilC

olo

mbia

Arg

entin

a

Sin

gapore

Hong K

ong

Indonesia

Kore

aIn

dia

Emerging Markets: FX Loans 2012 (% Total Loans, 2012 or latest available data) Source: IMF

Emerging Markets: Current International Reserve Adequacy 2013 (%GDP) Source: BBVA Research

Including Special and Relevant problems…

32

05

07

09

11

13

15

17

19

21

23

25

2008 2009 2010 2011 2012 2013

Dev. Markets

CEECs

CIS

Russia

Ukraine

Capital Adequacy of the banking system (regulatory capital ratios)

Although Banking Systems are well capitalized…

33

Corporate exposure to sovereign defaults is also relevant

Emerging Market Holders of Government Debt (% of total) Source: IMF