German banks’ cross-border funding rose by 26 percent in the first quarter, the largest boost in more than 20 years, as they attracted global lenders’ funds after the European Central Bank’s liquidity injections.
Cross-border lending by international banks to their German peers expanded by $271 billion in the three months ended March 31, the Bank for International Settlements, record-keeper of the world’s central banks, said in its quarterly report. The surge was one of the biggest contributors to a 0.4 percent rebound of global cross-border lending that followed the biggest drop since 2008 in the preceding three months, it said.
“BIS reporting banks’ aggregate cross-border claims increased during the first quarter of 2012, after falling sharply” in the previous three months, Basel-based BIS said. “Notwithstanding this rise, cross-border bank lending remained subdued from a longer-term perspective, in line with the moderate activity observed during the past few years.”
The ECB pumped an unprecedented 1 trillion euros ($1.3 trillion) into the region’s banks via two three-year Longer Term Refinancing Operations in December and February in an effort to unfreeze interbank lending and restart economic growth. President Mario Draghi has since topped that measure by announcing unlimited government bond purchases this month.
The 28-member Euro Stoxx Banks index, which has risen 51 percent since Draghi said July 26 he would do “whatever it takes” to save the 17-nation euro, fell 1 percent at 1:31 a.m. in Frankfurt after European finance ministers deadlocked over the timetable for a more unified EU banking sector.
The BIS’s numbers show a big divide between banks in the euro area’s core countries such as Germany, the Netherlands, and Austria, and banks in the countries that are already receiving aid or are suffering from rising refinancing costs, such as Greece, Ireland, Portugal, Spain and Italy. Lending to banks in the U.S. and Switzerland fell in the quarter, while Japan also recorded an increase in interbank loans from abroad.
The ECB’s LTROs rekindled market confidence and “helped to reopen wholesale bank funding markets,” the BIS said. “At the same time, there was a distinct north-south divergence in cross-border lending to euro-area banks.”
Deutsche Bank AG, Germany’s biggest lender, has seen the most stable part of its funding -- deposits and long-term securities -- almost double since the end of 2007, to 672 billion euros, or 57 percent of all funding needs, Chief Financial Officer Stefan Krause said last week.
While lending to German, Austrian, Dutch, Finnish and Belgian banks expanded in the quarter, lenders in Greece, Ireland, Italy, Portugal and Spain continued to see their funding contract by a combined $42 billion, or 11 percent, according to the BIS. That was driven by a 16 percent drop in lending to Italian and a 20 percent drop by Portuguese banks.
Meanwhile, lending to companies and households in those countries declined 2.6 percent, mostly due to Spain and Ireland, while loans to the public sector shrank by 5.4 percent, mostly caused by the Greek debt swap in March.
“Overall, the figures suggest that the two three-year LTROs conducted by the ECB in 2011 and 2012 did not unlock new foreign financing to these countries,” the BIS said.
Lending to emerging markets rose by 2.8 percent, the first expansion after three quarters of declines. That was mainly driven by cross-border lending to Chinese, Thai and Korean banks, companies and households, the BIS said. Latin American companies and households recorded the biggest expansion on the BIS’s records, mostly thanks to an expansion of credit to Brazilian and Mexican borrowers.
The only emerging economies who saw lending drop again were those in eastern Europe, mostly caused by falling loans to Hungarian, Russian and Serbian borrowers, while credit to Turkish residents grew, according to the BIS.
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 and funds deposited at banks -- are reported by 30 countries. Those countries include most developed and some emerging economies.