Interbank lending fell by 3.1 percent, or $581 billion, in the second quarter from the first, driven by an 18 percent plunge, or $249 billion, in lending to banks in Caribbean offshore centers, the largest-ever fall since the start of BIS banking statistics.
By contrast, lending to non-banks from banks was relatively stable, increasing by $5.6 billion, or 0.1 percent, while lending to borrowers in emerging markets rose by $6 billion, or 0.2 percent, despite another sharp drop in lending by euro area banks.
Overall cross-border claims fell by 1.9 percent, or $575 billion, to $29 trillion, the second largest fall since early 2009, reversing a slight increase in the first quarter, BIS said. The final BIS second quarter lending data are largely similar, though more detailed, to preliminary data released in October.
Claims on borrowers in advanced economies fell 1.4 percent, or by $318 billion, up from a decline of only $16 billion in the previous quarter. Cross-border claims on banks in the UK and US fell the most, by 4.8 percent and 4.5 percent, respectively, the third consecutive quarterly decline.
The sharp drop in lending to banks in advanced economies was mainly due to a 4.3 percent fall in inter-office positions, the largest fall on record, with lower lending to banks headquartered in the U.S. and euro area accounting for most of the drop.
The heavy debt and fiscal challenges facing some of the euro area’s 17 member nations continues to dominate the pattern of bank lending.
BIS data for lending on an ultimate risk basis, which reflects risk transfers and the nationality of banks and not where the transaction is booked, shows a $16 billion, or seven percent, drop in in the exposure of euro-headquartered banks to Greek, Irish, Italian, Portuguese and Spanish public sector borrowers to $201 billion.
Meanwhile, euro area and especially non-euro area headquartered banks increased their exposure to the public sector in other euro countries, especially Germany and France, continuing a longer-term trend that has accelerated since the debt crises worsened last year.
The total exposure to euro area sovereigns by banks from the 30 countries that report to the BIS amounted to $1.7 trillion in the second quarter.
The slight increase in lending to emerging market economies was driven by a 1.9 percent, or $25 billion, rise in claims on borrowers in Asia-Pacific with lending up to both banks and non-banks. However, this was outstripped by a rise in liabilities of reporting banks to Asia-Pacific banks, resulting in a net outflow of $2 billion.
Cross-border lending to borrowers in Latin America and the Caribbean grew 1.1 percent, or $7 billion, while claims on emerging Europe fell 1.5 percent, or $1 billion.
The composition of lending to emerging market economies in Asia-Pacific has changed significantly in recent years with banks from the euro area and Switzerland pulling back and being replaced by banks in that region, including Chinese banks. (For further details see accompanying article).
Overall, lending by euro area banks to emerging markets fell 5.8 percent, or $128 billion, in the second quarter, with lending to emerging Europe accounting for 57 percent of the decline.
Lending to emerging economies by U.S. banks also fell in the second quarter, by 2.5 percent, but in contrast, lending to emerging economies by Japanese banks rose 2.1 percent.
Click to read the BIS December quarterly review.