Charts of the Week

The share of residential loans to individuals whose value at the origination represents more than 90% of the value of the property acquired continued to grow in the first quarter of 2019. This credit category then represented 4.5% of outstanding home loans compared with 4.4% in the previous quarter and 3.3% a year earlier.

The increase in their weight in the first quarter of 2019 prolongs the trend observed since the low point reached at the end of 2009. It also goes hand in hand with the increase in the proportion of real estate loans whose value represents between 75% and 90% of the value of housing. The growing financial constraint of households is otherwise illustrated by the increase in the proportion of loans with a high loan to income ratio. The erosion of the margins of credit institutions concerned with preserving volumes and their market shares, has marginally contributed to this by keeping, despite the two increases in the base rate of the Bank of England (BoE) occurred since October 2017, the amount borrowed at a high level, in constant monthly payments.


Since the 3rd quarter of 2017, a year of strong economic growth, non-financial corporations’ margin rate* in the euro area has fallen steadily. In the 1st quarter of 2019 they hit their lowest point since early 2014, at less than 40% of value added. This trend echoes the increase in unit labour costs, which has resulted both from increasing wage growth and slowing labour productivity.

Forming part of a wider pattern of slowing growth in the euro area over a number of quarters and with high level of uncertainty, this narrowing of margins reflects the difficulties companies are experiencing in passing higher costs through to prices. Underlying inflation remains particularly inert. If it continues, this narrowing of margins could affect trends in investment.

* Calculated here as the ratio: (Gross operating surplus + Mixed income) / Value added, Seasonally and calendar adjusted


The political appeasements along with several reforms to improve the business climate have allowed a macroeconomic recovery since 2018 in Kenya. However, the fiscal position remains weak: on one side, budget deficits have reached an average of 8% of GDP over the last five years; on the other side, debt interests have attained 21% of estimated revenues in 2018 against 13% in 2014.

Moreover, the increasing tapping of non-concessional external loans is a growing vulnerability: in May, Kenya issued its third Eurobond for an amount of 2.1 billions of dollars, in two tranches with 7-year and 12-year tenors. Country’s repayment ability has lessened and the government has restarted the negotiations with the IMF to obtain a new financing agreement in 2019, after the previous loan’s expiration in 2018.  But this will depend on efforts to redress fiscal accounts and remove the rate cap on the banking system.

On the Same Theme

Brexit update 7/10/2019
Brexit has been behind thirty-seven resignations from the government responsible for managing the process, the latest being that of Prime Minister Theresa May herself. Having failed three times to get the Withdrawal Agreement through Parliament, she had little choice but to ask for an extension of the Article 50 period and then in the end to resign. The two candidates to take her place are the current Foreign Secretary, Jeremy Hunt, and his predecessor, Boris Johnson. Whilst Mr Johnson claims he can negotiate a changed deal and trigger Brexit from 31 October 2019 (the latest deadline), Mr Hunt plans to seek more time in order to renegotiate to allow for an orderly exit.
United Kingdom: Private sector loans drive growth in bank balance sheets 6/12/2019
The Bank of England's (BoE) aggregate balance sheet statistics for the Monetary and Financial Institutions (MFIs) provide a macroeconomic picture of the UK banking system. They illustrate the contraction of bank balance sheets until December 2015 (-19% compared to January 2010). This was mainly the result of the decline in outstanding loans to the resident non-financial private sector, whose debt was returning to more sustainable levels. Non-resident claims and interbank transactions also contributed to the decline in bank balance sheets. The trend has reversed since 2016 (+ 19% between December 2015 and March 2019), but the balance sheet of the UK banking sector has not yet returned to its 2010 size in terms of value or as a percentage of GDP (GBP 4,122 bn or 195% of GDP in March 2019 vs. GBP 4,288 bn or 279% of GDP in January 2010). The recovery is driven by the recovery of outstanding vis-à-vis the resident non-financial private sector (+ 17% after -20% between 2010 and 2015), and for non-residents (+ 21% after - 15%). The interbank market remained at a low level, partly driven by the BoE's operations* (+ 68% after + 49%). *such as quantitative easing or term funding scheme implemented by the BoE to inject liquidities
United Kingdom: Three questions about Brexit 6/11/2019
The deadline for Brexit has been extended to 31 October. However, it is far from certain that this delay will be for any help in getting out of the impasse.
Six questions about Brexit after the European elections of 23 May 2019 6/5/2019
What do the results of the European elections tell us? Does Prime Minister May’s resignation change things?Can the Withdrawal Agreement still be saved? Is there still a risk of a no-deal Brexit? Are we heading towards early elections? How is the UK economy holding up?
United Kingdom: Financial services strengthen trade surplus vis-à-vis the European Union 5/2/2019
The United Kingdom has had positive trade balances with the rest of the world since 1966 and the European Union (EU) since 2005. The financial services sector is a major contributor. As far back as the Office of National Statistics (1966) statistics of foreign trade in financial services show, the sector has always had a trade surplus. The same has been true for the EU since 1999, for which this surplus even increased fivefold until 2011 (GBP 21.5 bn). The decline observed between 2012 and 2014 was almost erased between 2015 and 2018 (GBP 20.4 bn). The UK financial services sector has a surplus vis-à-vis each of the major EU economies, starting with France, the EU market with the largest surplus in the EU since 2014 (GBP 4.5 bn in 2018). The situation, however, is likely to be weakened by Brexit.
False start 4/19/2019
By opting to leave the European Union (EU) without any exit plan, the United Kingdom has come face to face with an impossible choice. Week after week, the Brexit impasse has revealed the British Parliament’s incapacity to make decision, starting with the ratification of the divorce terms, the fruit of 2-years of negotiations by Prime Minister Theresa May. In the end, the Brexit was simply postponed. First set for 29 March, then 12 April, the deadline for exiting the EU has now been extended to 31 October (a Halloween treat?). This date could be moved forward if the UK finally manages to ratify the withdrawal agreement, which it has rejected time and again. But the most probable scenario is that the UK will extend its participation to the EU, at least for a while…
Brexit: The shape and scope of financial implications 4/4/2019
Brexit started as a surprise, with the majority Leave vote in the UK referendum on June 23, 2016. In the financial sphere, more specifically, Brexit implies a loss of European passporting rights for the UK and thus less integration between the European Union and the leading financial centre of London. The trade in financial services between the two zones will now have to meet the requirements of two separate sets of regulatory and supervisory authorities, rather than just the requirements of a single regulatory framework as at present. At the very least, this will hold operational uncertainty for some time to come. This edition of Conjoncture aims to sketch out the main lines of the changes to the regulatory framework that financial institutions will have to address because of Brexit, and to identify the main challenges.
Brexit update 1/24/2019
On 15 January 2019, UK MPs rejected the proposed Brexit agreement reached by EU Heads of State two months earlier. With 432 of the 634 votes going against the deal, this result has significantly weakened Prime Minister Theresa May in future discussions with the EU and with Members of Parliament. Today almost anything looks possible, starting with a delay in the official date of the UK’s departure, currently scheduled for 29 March.
Brexit, the cost of uncertainty 1/18/2019
Market reaction suggests that the parliamentary vote, with a wide majority, against the Brexit deal which had been negotiated with Europe, has reduced the likelihood of a no-deal Brexit. Whether this feeling of relief lasts will depend on how the discussions on possible outcomes evolve. The economic headwind which comes with this prolonged uncertainty, for the UK but also for the companies in the EU which trade with the UK, will not go away soon.

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