Syndicated bank lending worldwide dropped 23% from the second quarter to the third as financial turmoil made banks draw back, according to the Bank for International Settlements.
The Basel-based international central bank attributed the decline, to $203 billion, to several factors.
A severe pullback by Japanese banks, along with mergers among banks in Europe, have "reduced the pool of lenders and created some pricing uncertainty," the BIS noted. Also, Russia's June suspension of foreign debt payments brought "new activity for emerging-market names to a near halt," it said.
U.S. banks also sharply reduced their international exposure during the 12 months that ended June 30, according to data released by the BIS. Third- quarter data detailing U.S. bank activity were not available.
According to the BIS, U.S. banks slashed their cross-border loans outstanding by nearly $5 billion, to $125 billion, over the period, with the largest cuts coming in exposure to Asia.
In just the first half of 1998, U.S. banks cut their loans to Asian borrowers to $22.6 billion, from $29.5 billion at yearend, but increased loans to Latin American borrowers to $64.2 billion, from $61.8 billion.
The BIS noted that a general contraction in banks' willingness to engage in cross-border lending continued into the second half.
Most of the cutbacks recorded in the first half came in lending to emerging-market countries, especially in Asia.
Though international banks increased lending to Latin America by $15 billion during the first half, most of the rise reflected increased lending to Brazil, the BIS observed.
Among the report's other findings:
*In the first half U.S. banks increased their exposure to developed countries to $16 billion, from $13.4 billion, and to Eastern Europe to $12.4 billion, from $10.5 billion. Lending to Middle Eastern borrowers remained steady, at around $5 billion. Lending to African borrowers dropped slightly, to $4.8 billion.
*Issuance of international debt securities declined dramatically, to $126.3 billion in the third quarter from $212.6 billion in the second and $179.9 billion in the first. Market turmoil brought a loss of confidence among international investors in bonds and a massive flight into cash and government securities. Corporations and sovereign issuers had to pay higher interest rates, and capital markets and bank loans were available only to the most creditworthy borrowers.
*Turnover in exchange-traded derivatives contracts soared 14% in the third quarter, to a record 366 million transactions, as a result of turbulence on global financial markets. The biggest increases were in derivatives contracts related to equities and to government bonds.