Why Asian borrowing rises as lower rates lift demand

CareEdge says liquidity support is helping domestic activity and loan expansion across select markets

Select Asian economies are continuing to benefit from lower rates and improved liquidity, boosting demand and borrowing across the region, a CareEdge Ratings report showed.

In India, rate cuts and liquidity injections have helped lift domestic demand and credit growth, supporting GDP growth. 

China is also showing strong banking depth, with bank credit at 187% of GDP and bank deposits at 221%. That places it amongst the more bank-driven economies in the global comparison.

India’s banking ratios remain lower. Bank credit stands at 53% of GDP, whilst bank deposits are at 66%. 

The figures suggest that formal lending is expanding, but still remains relatively underpenetrated compared with the size of the economy.

Across the wider market, the UK posted the highest bank credit-to-GDP ratio at 240%, followed by France at 216% and China at 187%. 

Germany stood at 151%, Japan at 119%, India at 53%, and the US at 43%.

For deposits, France led at 276% of GDP, followed by China at 221% and Japan at 211%. Germany recorded 124%, the UK 122%, India 66% and the US 62%.

The figures point to different banking structures across markets. China, France and Japan have large deposit bases, supported by high household savings and sizable banking sectors. 

The UK, despite its high credit penetration, has a lower deposit ratio of 122%, indicating heavier use of wholesale and market-based funding.

The US continues to show lower bank credit relative to GDP because financing is more spread across bond markets, securitisation and non-bank institutions. 

Germany and Japan remain more bank-centred, although Japan stands apart for a different reason.

Japan’s credit-to-deposit ratio remains just under 60%, significantly lower than that of other advanced economies. 

That reflects cautious borrowing behaviour following the financial crisis of the 1990s, whilst deposits have continued to build up, especially from an ageing population with limited investment alternatives. As a result, deposit growth has continued to outpace credit demand.