Global Banks’ Lending Falls 1.8% in Third Quarter, BIS Reports

Lending by global banks fell by 1.8 percent in the third quarter of 2013, as loans to other banks shrank at the fastest rate in more than a year, the Bank for International Settlements said.

Cross-border claims of banks reporting to the BIS declined by $500 billion to $28.5 trillion in the three months through September 2013, the Basel, Switzerland-based institution said in a report released today. The reduction was driven by a 2.7 percent fall in lending to other banks, extending a five-year slump that has taken out $5.7 trillion of bank funding since 2008, the BIS said.

“The 2007–09 global financial crisis and the subsequent euro area financial strains have left a profound imprint on international interbank funding,” the BIS, record-keeper of the world’s central banks, said in its quarterly report. “While this contraction affected most countries worldwide, it was largest for borrowers in Europe, especially the euro area.”

The decline in interbank lending comes as regulators discourage wholesale borrowing and move to rules that will require creditors to take losses when banks are rescued. Lenders also still harbor doubts about their peers’ asset quality and central banks continue to step in with unprecedented liquidity as they did when strains in global banking first appeared in 2007.

Parent Funding

The biggest reason for the drop in bank lending in the third quarter of 2013 was a reduction of “inter-office positions,” or lending between parent and subsidiaries of the same banking group, the BIS said. That extended a “steady decline” that started in late 2011, it said. Regionally, the retreat was most pronounced for claims on banks in the euro area, which declined by 4.2 percent, and in the U.K., which fell 7.8 percent, it said.

Lending to borrowers in emerging-market economies rose 1.7 percent, or $60 billion in total, as significant increases in a few Asian countries more than outweighed declines elsewhere.

“These developments coincided with a period of volatility in global financial markets, after announcements in May that the Federal Reserve envisaged phasing out large-scale asset purchases led to capital outflows from several emerging-market economies,” the BIS said.

Lending to Chinese borrowers expanded by 8.5 percent, by 15 percent in Taiwan and by 9.3 percent in Malaysia, the latter being the biggest increase in 2 1/2 years, the BIS said. Claims on Indian, Turkish, Brazilian and eastern European borrowers declined, according to the report.

Before it's here, it's on the Bloomberg Terminal.