Global cross-border lending dropped by $5 billion in the fourth quarter of 2014 as claims on borrowers in emerging markets, especially China and Russia, plunged by $80 billion while lending to advanced economies, such as the United Kingdom and the euro area, continued to recover, according to the Bank for International Settlements (BIS).
Lending by major international banks to China contracted by $51 billion by the end of December 2014 from the end of September, but outstanding claims on Chinese residents totaled $1 trillion, far exceeding those of other emerging market borrowers such as Brazil, with total claims of $308 billion, India of $196 billion and Turkey of $194 billion.
The surge in lending to China over the past few years has been driven primarily by short-term leading to banks - much of it in U.S. dollars - but authorities are now attempting to carry out a delicate balancing act of tightening credit conditions without disrupting economic growth.
The contraction in lending to China in the fourth quarter of last year comes after an increase of almost 40 percent between the end of September 2013 and September 2014. But from the second to the third quarter of 2014 claims rose only by 3 percent.
With the U.S. Federal Reserve likely to raise rates in coming months, there is concern that borrowers in emerging markets will face strains from higher debt repayments of loans in U.S dollars.
Although the dollar share of cross-border lending has declined for China to 39 percent at the end of 2014 from 54 percent at the end of 2008, it remains very high for other countries. At the end of 2014, dollar-denominated loans amounted to 78 percent of cross-border claims to Brazil, 74 percent of claims on India, 68 percent for Indonesia and 70 percent for Taiwan.
International lending to advanced economies continues to expand as their banking systems recover after the global financial crises, with claims on advanced economies up by $27 billion in the fourth quarter from the third quarter, helped by a 5 percent year-on-year rise in loans to the euro area and the U.K. and steady lending to the U.S.
Within the euro area, there are marked differences as loans to France rose by 12 percent annually, claims on Germany rose 8 percent and claims to Italy were up by 6 percent. Meanwhile, claims on Cyprus fell 8 percent, while annual claims on Portugal and Spain fell 4 percent and loans to Greece contracted by 3 percent.
Cross-border claims on Japan also continued to expand at a very rapid pace, growing at annual rate of 16 percent as of the end of 2014, with most of the growth in lending directed towards banks. The share of international claims on Japanese banks rose to 75 percent by the end of last year from 53 percent at the end of 2007.
Click to read the BIS international banking statistics at end-December 2014.