International banks cut their loans to fellow lenders and governments in Italy, France and Spain in the third quarter, hoarding German, Japanese and U.S. bonds instead, data from the Bank for International Settlements show.
Cross-border claims on the Italian state, mainly bonds and loans, declined by 23 percent, or $67.7 billion, in the quarter ended Sept. 30 at banks in the 24 countries for which the Basel, Switzerland-based BIS reports those data. The same measure dropped 21 percent for France and 10 percent for Spain. It also fell for emerging economies including Brazil, Mexico and Poland, while $65.3 billion went into German government debt and $77.2 billion into U.S. Treasuries, the BIS said in a statement.
“Contrasting with the reduction in claims on the public sector in emerging countries, the exposure of international banks to the developed countries’ public sector increased by 4.3 percent in the third quarter,” the BIS said. “This increase was driven by claims on the public sectors of the United States, Germany and Japan.”
The data cover the quarter in which investors started to dump all but the safest of assets to cushion against losses amid signs of a worsening of the euro-area debt crisis. The European Central Bank restarted its bond purchases in August to prop up government securities in the region, allowing holders of those bonds to exit their assets. Emerging-market assets slid as commodity prices tumbled on concerns Europe’s woes may hurt the global economy.
The euro declined by 7.7 percent in the quarter against the dollar, the currency in which the BIS keeps the data. German government bonds returned 7.9 percent in the same period, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg.
Treasuries gained 6.5 percent and Japanese bonds rose 1 percent, the indexes showed. French debt gained 6.2 percent, with Italian bonds losing 4.2 percent and Spanish securities increasing 2.5 percent.
The Polish zloty and Brazilian real slid 17 percent against the dollar in the period, the most out of 25 emerging-market currencies tracked by Bloomberg. The Mexican peso fell 16 percent and the ruble 13 percent. Government bonds of all three countries dropped in the quarter, and benchmark stock indexes in each country declined at least 8 percent.
French banks shed the most Italian government debt, reducing their claims by 23 percent, the BIS said. They also retreated from other European assets including German bunds and German and Italian bank debt, which they cut by 28 percent. Instead, they shoveled $41.3 billion into Treasuries, increasing their U.S. government claims by 39 percent.
U.S. and U.K. banks were shifting assets at the fastest pace. U.S. lenders’ claims on French banks dropped by $29.1 billion, or about a quarter, while U.K. banks cut their lending to Italian banks in half. Both piled into bunds, with British banks increasing the German government claims by almost two-thirds, or $40.3 billion, and U.S. lenders raising them by 72 percent, or $42.6 billion.
German banks proved to be the most stable investors among the BIS sample in the quarter. They reduced their lending to French, Italian and Spanish borrowers by less than the average, and increased the U.S. government claims by $2.8 billion.
The BIS data record the cross-border business of banks in the countries reporting to it. Data for banks’ consolidated cross-border claims -- which include bonds, loans, funds deposited at banks -- are reported by 30 countries, 24 of which break down borrowers by nationality and by public, bank and non-bank private sector. Those countries include most developed and some emerging economies.
The data cover only part of the market. China, the world’s biggest holder of Treasuries, doesn’t report its banks’ holdings to the BIS. Claims by institutions other than banks, such as mutual funds, insurers or central banks, are also not reflected. The records are reported in U.S. dollars at the rate of the period’s end and not adjusted for currency movements.
Declining exchange rates versus the dollar contributed to the drop in claims on emerging markets in the quarter, the BIS said. Lending to Brazil’s government dropped 17 percent in dollar terms, to claims on the Mexican state by 18 percent and on Poland by 17 percent, it said. All those countries have debt denominated in other than their local currencies.