The global banking market expanded only marginally in the third quarter of 2012 – the smallest quarterly rise in 13 years - as lending to banks in the troubled euro area contracted further while credit extended to non-banks in the United States expanded, rising according to final quarterly data from the Bank for International Settlements (BIS).
Total cross-border claims by banks from 31 countries rose by only $33 billion, or 0.1 percent, slightly up from a $26 billion increase reported by BIS in January's preliminary lending data.
The minor rise in international bank lending was driven by a $153 billion expansion, or 1.4 percent, in lending to non-banks, mainly in the United States, while lending to other banks, especially in the euro area, fell by $120 billion, or 0.7 percent, BIS said in its March quarterly review.
International bank lending to borrowers in advanced economies rebounded by $106 billion, the first rise after three consecutive quarterly declines, but this was mainly driven by a shift in lending to UK borrowers and away from euro area borrowers, illustrating the challenges facing the euro area.In a sign of the global retrenchment of euro area banks, their lending to non-banks in the United States fell further. Euro area banks' share of total foreign claims on the U.S. non-bank private sector fell to 26 percent at the end of September from a peak of 43 percent in end-June 2007, primarily reflecting lower lending by Dutch and German banks.
In contrast, the share of Japanese banks in the United States rose to 22 percent, up from 10 percent, in the same period, and that of Canadian banks rose to 14 percent from 6 percent, confirming figures that were also released in January.
Meanwhile, lending to borrowers in emerging economies contracted by $30 billion, or 0.9 percent, in the third quarter, with lending to banks down by $55 billion, especially in Asia-Pacific and Latin America.
A $47 billion decline in Asia-Pacific was driven by lower lending to banks in China and Korea, only the third quarterly decline to the booming region since 2009, BIS said.
Part of the explanation for the drop in bank lending comes from rapidly rising capital flows to emerging markets from private portfolios.
Private non-bank inflows into emerging economies have risen to $365 billion in 2012 from $155 billion in 2009 wile bank inflows fell to $147 billion from $154 billion in the same period.
A surge in activity in emerging markets’ corporate bond markets explain this shift, with demand for such bonds dominated by high net worth retail investors, BIS said.
Demand from institutional investors for international corporate bonds from emerging economies has remained relatively small, less than 10 percent compared to about 50 percent of the international sovereign bond market, but may rise thanks to greater activity by global money managers, BIS said.
The stock of corporate debt issued by financial and non-financial corporates from emerging economies totaled more than $1.6 trillion at the end of 2012, with Asian borrowers the largest issuers followed by Latin American firms.