Default rates have fallen, and forward-looking measures also suggest a decline in credit risk. This has of course been driven by improvements in credit quality as the macroeconomic situation has improved. But it may also reflect the role of higher capital in resolving agency problems: the more a bank is capitalised, the more its owners stand to lose if borrowers default and cause losses.
Argentina’s growth is impressive, some 10%, but unless it clears its foreign debt hurdle there is no guarantee that the recent performance will continue over the medium term. Russia and a few transition economies also show strong growth, although, as in the case of many Latin America countries, the boom in raw materials and energy prices has significantly contributed to this outcome.