How European bankers cover foreign loan risks

European bankers generally seem to be much more concerned about the problem of loans to Eastern Europe and to developing countries than their American counterparts, but for some Americans, the level of concern may be increasing.

Hans-Georg Kupper, an economist and manager with the Dresdner Bank, says his institution has ''covered sufficiently'' the risk associated with such loans.

''No one land has more than 1 percent of our outstanding credit,'' the executive of this major West German bank added.

Like other West European international banks, Dresdner has been stashing money into reserves to cover any losses should any of these loans go sour.

It is difficult to reckon just how well covered the European banks actually are, because they are free to put away hidden reserves as well as those made in the public books. But it is believed they may well have piled up more reserves than American banks.

Another German bank, Commerzbank, paid no dividend at all last year, despite sharply higher earnings, so as to build up reserves for this purpose. And it will do the same this year, the bank announced earlier this month.

In its 1982 annual report, the bank notes: ''Total risk provision of all kinds amounted to several times the 1981 figure - itself well above the average for the preceding 10 years.''

United States banks, according to Federal Reserve Board data, had medium- and long-term loans to non-OPEC developing countries and the Eastern bloc of some $ 108.2 billion as of last June. This money is spread over many countries and many institutions.

The seven biggest developing-country borrowers are Argentina, Brazil, Chile, Mexico, South Korea, the Philippines, and Taiwan. Here the exposure of US banks was $79.5 billion. The Latin American borrowers are most worrisome to bankers.

Total capital of US banks, or long-term debt plus the shareholders' equity, was $66.2 billion in mid-1982. So their loans to non-OPEC developing countries and the East bloc were more than 1.6 times their capital. On one side of this risk question, it is unlikely that all these nations would default on their debts at once. On the other side, a large portion of the money has been lent by relatively few banks to only a few major debtors. Defaults by Mexico and Brazil alone would wipe out 95 percent of the capital of the nine largest US banks and 74 percent of the capital of the next 15 largest ones.

Such facts as these were enough to make ''sovereign risk credit'' a major item on the program of the world's top commercial bankers when they met in Brussels last week. They are now in the midst of a ''second round'' of financing talks with many of the debtors.

The news in recent days has been full of such negotiations. In New York, Nigeria reached a tentative agreement to convert $1.5 billion of arrears on letters of credit into a three-year loan. Peru has been trying to stretch out more than $1.7 billion in foreign debts from one year to three years.

Brazil has been talking with the International Monetary Fund about meeting the conditions required for domestic policy under an IMF loan agreed to in February. Meanwhile, it may be seeking more money from smaller European and US banks.

Chile has been trying to reschedule some $3.4 billion in loans from some 500 or 600 commercial banks, plus get some billions more in new money. Mexico has proposed a plan to service some $15 billion of loans made by foreign banks to its private companies. Nicaragua wants a deferment of $100 million in interest and principal due over the next year. The list goes on.

James D. Wolfensohn, president of an investment firm in New York of the same name, notes that the IMF and others have indicated a need for $15 billion to $20 billion in new commercial bank financing - short and long term - by the developing countries this year to meet their obligations and speed development. This is about a 7 percent increase over total 1982 exposure, it was noted.

''Let us hope,'' said the New York financial adviser, ''that those involved in country debt restructuring will not leave it too late to be realistic and to compromise.'' He warned that their failure could endanger the world economic system.

Mr. Wolfensohn held that the case-by-case method of negotiations to resolve country debt problems is working. But the long-term solution requires the renewal of growth in the industrial nations. This would increase the demand for developing-country exports.

Further, he said, the IMF and the World Bank must be strengthened. Creditor banks should be ''realistic'' in setting terms of reschedulings and provide adequate additional funds.

''Bankers will have to consider the issue of whether the increased interest, margins, and front-end fees charged at the time of rescheduling are appropriate to the situation,'' he added. Perhaps, he went on, such extra charges might be made contingent on the borrower's recovery and capacity to repay in foreign currency.

Jeffrey E. Garten, a vice-president of Lehman Brothers Kuhn Loeb Inc., a New York investment banking firm, held that the current international strategy for dealing with the developing-country problem is inadequate. This strategy relies on national industrial recovery, lower interest rates, reduced protectionism against developing-country exports, severe austerity in these nations to reduce their demand for imports and increase exports, and levels of capital inflow to the developing countries which are, at best, equal to their debt service payments.

Mr. Garten, whose firm sometimes represents developing nations in debt negotiations, wondered if recovery would come soon enough to boost developing-country exports and be strong enough to let the politicians of industrial nations reduce trade barriers.

Moreover, he asked whether the debtors could sustain their austerity programs politically and socially. ''I suspect far more is being demanded of the major debtors by way of adjustment than could be accepted by any (industrial) nations, '' he said. ''And these measures come on top of a situation which had already been deteriorating.''

Mr. Garten argued that the developing countries should be allowed to grow faster, because this would increase their exports, aiding their recovery, and in turn permit more exports to these rich countries.

He concluded: ''The debt crisis has accelerated what was already coming: the painful integration of the major (developing) countries into the mainstream of the world economy.''

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