Risks related to EME corporate balance sheets: the role of leverage and currency mismatch by Michael Chui, Ingo Fender and Vladyslav Sushko published by BIS Quarterly Review (9/2014).
Corporates in many EMEs have taken advantage of unusually easy global financial conditions to ramp up their overseas borrowing and leverage. This could expose them to increased interest rate and currency risks unless these positions are adequately hedged. The key question is whether EME corporate balance sheets have become more susceptible to shocks. Greater corporate exposures could, in turn, spill over into vulnerabilities for both local banks and the financial system more broadly. Shocks to interest or exchange rates could generate damaging feedback loops if credit risk concerns were to prevent existing bank or bond market funding from being rolled over.
