Bank Loans in International Arena Off to Slowest Start in Five Years
NEW YORK -- The contraction in bank lending has spread to the international market for syndications.
Banks virtually stopped financing mergers and acquisitions in the first four months of 1991 and pulled back on extensions of general-purpose credit lines, according to the Paris-based Organization for Economic Cooperation and Development.
Shying Away from Borrowers
"Banks have moved away from marginal borrowers," said a senior organization official in Paris.
"There's been an unwillingness to lend because many are restructuring their balance sheets and trying to improve asset quality," the official said.
Based on the January-to-April trend, international syndicated bank lending will fall this year to $80 billion, its lowest level in five years, the research agency reported.
The figure is about one-third less than the $118 billion in 1990 and $121 billion in 1989 that banks syndicated, or arranged with other banks.
The previous low in cross-border loan syndications was $52 billion in 1986.
The organization attributed the slowdown to banks' concerns about the creditworthiness of corporate borrowers and a sharp decrease in lending for mergers and acquisitions.
The report, "Financial Market Trends," is released three times a year by the organization, a 24-nation policy planning association whose members include most of the world's industrialized nations.
Among the report's other findings:
* Developing countries accounted for less than 10% of international borrowings from banks.
* International bank lending has been steadily losing out to cheaper financing through bonds and commercial paper.
* Future levels of international syndicated bank lending will depend mainly on the demand for loans from high-quality borrowers and, possibly, large borrowings by Persian Gulf states to finance postwar rebuilding.
To date, "the volume of Gulf borrowing that has actually materialized has been moderate, relative to the size of the market," the report said. "But it is evident that the situation could change dramatically if the international banking sector were to be chosen as a primary vehicle for such financing."
Bond Markets Heat Up
The report contrasted the decline in bank lending with the sharp surge in borrowings on international bond markets.
International bond issues rose in the first four months of this year to $100 billion, a 37% increase over the same period in 1990. The total will probably top $300 billion this year, beating the 1989 record of $256 billion, the organization official predicted.
"The figures show that a very interesting discrepancy is beginning to develop" between the bond and loan markets, the official said.
In contrast to the shortage of funds for bank lending, he said, there appears to be no shortage of funds for investment in international bonds markets.
Funds seem to be available not only in major currencies like U.S. dollars but in the Canadian dollar, French franc, Italian lira, Spanish peseta, and in other currencies.