IMF: Losses from bad debt grow around the globe

Just as the sky seemed to be clearing a bit for America's biggest banks, gloomy forecasts from overseas suggested that the global financial crisis is far from over.

In fact, from a global perspective, it's getting worse, the International Monetary Fund (IMF) said in its semiannual financial stability report released Tuesday. The weakening overseas could further extend the recession here in the United States, although currently the problems are concentrated in more export-oriented economies.

"Nearly all the elements of the [global financial stability] map point to a degradation of financial stability, with emerging market risks having deteriorated the most since October 2008," the IMF concluded in its report.

That deterioration means that losses on loans could near $4.1 trillion on the $58 trillion or so in assets held by financial institutions in the US, Europe, and Japan. Globally, only about $1 trillion' worth of bad loans has been written down so far.

The US still has the largest total of bad debt, some $2.7 trillion, up from the roughly $2.2 trillion the IMF projected in January. But even as lending growth slows - and even contracts in the US and Europe - it is plunging in emerging markets as foreign banks curtail their lending there.

That is taking a heavy toll on export-dependent emerging markets, especially those in central and eastern Europe.

"Emerging markets could see net private capital outflows in 2009 with slim chances of a recovery in 2010 and 2011," the report said. "This decline is likely to slow credit growth, impairing corporate refinancing prospects."

Those problems, in turn, place even more strain on European banks (especially those in Austria, Belgium, Germany, Italy, and Sweden) that have made loans to those emerging markets in Eastern Europe.

Thus the pressures on the global banking system, far from abating, are likely to intensify in the coming months.