Fresh bank lending in emerging markets fell 17% last year, to $65 billion, as many potential borrowers moved back into the bond and equity markets, according to the Institute of International Finance.
The institute, whose members include a variety of financial services companies, added that the reduction of net lending was also traceable to short-term foreign currency borrowings and a decline in local interest rates.
An institute study concluded that the increase in bank lending to emerging markets could fall a further $4 billion this year, to about $61 billion.
The lending figures refer to the difference between outstanding loans which have been repaid in the course of the year and new loans issued.
Among other trends:
Bank lending to emerging markets is shifting away from short-term toward medium- and long-term credits.
Total net capital flows to emerging markets rose only slightly, to $239 billion, but net private capital flows, including from banks and private investments in equity and bonds, increased 19%, to $231.5 billion.
Net new official lending to emerging markets, such as government export credits and other government agency loans, fell sharply, to $7.8 billion from $43.7 billion.
Net equity investments in emerging markets rose to $103.6 billion, from $98.7 billion.
Net additional nonbank private credits, mainly bonds, rose to $63 billion, from $18 billion.
Capital flows to emerging markets have become increasingly important for U.S. and European banks.
These institutions can charge higher margins on credit than they can at home, and underwriting and distributing debt and equity, primarily for Latin American and Asian issuers, is a growing business.
Institute data show that net additional lending by commercial banks in emerging markets climbed from $25 billion in 1993 to $29 billion in 1994 and $77.6 billion in 1995 before falling last year to $65 billion.
William Cline, deputy managing director of the institute and its chief economist, noted that much of the surge in bank lending in 1995 came after the Mexican financial crisis, when capital market investors worldwide had lost confidence in emerging market issuers and spreads on bank lending rose sharply, prompting a large increase in bank loans.
"Banks were somewhat more quick on their feet to take advantage of rising spreads when the bond market contracted substantially," Mr. Cline said. "Basically, what we've seen is some reversal of that trend in 1996 when there were record bond issues."