Banks were more reluctant than ever to lend to peers abroad last year, driving cross-border interbank loans as a share of total credit to a historical low, the Bank for International Settlements said.
Cross-border lending of banks reporting to the BIS fell by $345 billion, or 1.2 percent, to $29.3 trillion in the final quarter of 2012, bringing the decline for the year to 1.9 percent, the Basel, Switzerland-based institution said today. The drop was caused by a 5.2 percent reduction in lending to banks based in the euro area, as well as by shrinking lending to U.K. and U.S. banks, the BIS said. Interbank lending as a share of all cross-border lending fell to a record 38 percent.
“This large contraction underscored the ongoing trend away from cross-border intermediation, particularly in the euro area,” the BIS, record-keeper of the world’s central banks, said in its quarterly report. “The decline in global cross-border interbank positions was more pronounced in 2012 than in previous years.”
The decline in interbank lending comes as regulators are increasingly discouraging wholesale borrowing, banks haven’t eased their skepticism of peers’ asset quality and central banks continue to step in with unprecedented liquidity injections since strains in global banking started to appear in 2007.
Global cross-border lending to banks, charted by the BIS since 2005, peaked at 46 percent of all cross-border lending in 2007, the BIS said in the report, dropping to 40 percent at the end of 2011 before falling further last year.
The decline in interbank lending isn’t restricted to the banks at the center of the euro-area’s debt crisis, according to the BIS. Regulatory changes in the U.S. aimed at reducing the reliance on wholesale funding raised outside of the country contributed to a 16 percent decline in global lending to U.S. banks, according to the BIS. Claims on euro-area banks fell 8 percent and on U.K. banks by 6 percent, it said.
As banks reduced their lending to other banks in the developed world, they increased it to emerging-market borrowers, albeit at a slower pace than in 2011, the BIS said. In the full year, lending to banks, businesses, households and governments in emerging markets grew by 3 percent, down from 8 percent growth in 2011, it said.