Commercial Bank Provisioning against Claims on Developing Countries

Abstract

Although this chapter focuses on ‘provisioning’ by commercial banks against their loans to developing countries, it is important to put this development into the general context of the evolving Third World debt problem. As is well catalogued in the literature, the seeds of this problem were, in many ways, sown following the first major hike in oil prices in 1973. Developing countries facing large balance of payments deficits were attracted to the alternative of financing which enabled them to adopt a slower speed of adjustment than would otherwise have been necessary. Even some oil-rich countries were encouraged to borrow on the strength of their oil resources. The required financing was, in large measure, provided through the intermediation of the private international banks with the official sector adopting a relatively muted role.¹