Global Bank Lending Slips For Second Quarter in Row
LONDON -- No longer fueled by loan-hungry Japanese banks, the international banking machine is sputtering, according to quarterly statistics released by the Bank for International Settlements.
Lending worldwide by banks in the major industrial nations fell by a record $164 billion in the second quarter, the second straight quarterly decline, the Basel-based bank said.
This brought the overall decline in their loans in the first half of the year to $219 billion, leaving $6.9 trillion outstanding, and marked the first time that such a decline has been posted over two consecutive quarters, the central banking agency said.
Japanese Banks Exit
The retreat from the global banking business continued to be led by the Japanese, whose foreign assets shrunk by $30.7 billion. This reflected a "basic change in their strategies away from balance-sheet growth toward asset quality," the bank's report said.
The international lending scene was dominated by Japanese banks in the 1980s. As late as 1989, Japanese institutions made more than 50% of all foreign loans. This year, the group's portion of global lending activities has shrunk to 33%.
But the recent retrenchment, largely governed by the need to comply with the new international capital adequacy standards, is apparently spreading to other banks, even those in Europe that have in recent months taken over as the most active in international bank lending, the report's authors said.
All Countries Involved
"Most financial centers and all major nationality groups of banks recorded an absolute contraction in their outstanding international assets and liabilities," the agency reported.
Lending by banks in the United States rose by $6.3 billion in the second quarter, though there was a decline of $2.5 billion in the foreign assets of their off-shore-based units, called international banking facilities.
Since June 1989, lending by these special international banking divisions of U.S.-based banks has fallen by $66 billion, or nearly 20%.
The settlements bank linked this largely with the lifting in 1990 of reserve requirements on the net external borrowings through onshore accounts of U.S. banks.
Reversal of Position
U.S. banks moved from a position of being net creditors with nonbanks in the rest of the world of $20 billion in 1985 to a net liability position of $23 billion by mid-1991.
Over the same period, they scaled down their net creditor position in the interbank markets from $82 billion to $42 billion while simultaneously running down their outstanding borrowings of certificates of deposit and other securities overseas.
Much of the second quarter's slowdown in international banking flows occurred in the interbank markets, the basic pool of liquidity that banks used for a primary source of various currencies and deposits to underpin lending, BIS data show.
Banks appear to be reassessing their role in the interbank system because interest margins are now "very thin," it remarked. Commercial banks have indicated that, with the new capital standards, they must earn at least 50 basis points over their basic cost of funds to justify a loan.