Banks up lending to Europe
New figures reveal a $US15.8 billion jump in locally based bank lending to European nations in the December quarter - taking exposure to the region to $US200 billion.
At the same time, lending to the sluggish US economy jumped by more than a quarter to $US100.9 billion, according to preliminary data from the Bank for International Settlements.
The increase in lending to Europe, which occurred as financial markets rallied on growing hopes of a global economic recovery, is the biggest rise in Australian exposure to the region in at least three years.
The sharpest change in Australian banks' exposure to the eurozone centred on Germany, where local banks' claims jumped to $US13.8 billion, from $US9.2 billion three months earlier.
Lending to the British economy also rose by $US8.6 billion to $US157 billion, despite the British economy shrinking during the quarter.
Exposure to France and Ireland each rose by close to $US700 million, to $US7.6 billion and $US3.2 billion respectively.
While Australian banks appear more confident about overseas lending, the trend is at odds with a $US405 billion contraction in global inter-bank lending during the quarter.
The Switzerland-based BIS said that instead of banks lending to each other, government borrowing drove credit market activity during the quarter. "International banking activity in the fourth quarter of 2012 continued to be marked by divergent sectoral trends, as credit to bank and non-bank counterparties moved in opposite directions," BIS said.
The rise in Australian lending to Europe, which also takes into account the activities of foreign-owned banks based here, comes after local banks' caution about lending in the eurozone.
Despite the rise, Australian banks' lending to Europe's most troubled economies is negligible. Local lenders had $US101 million in outstanding loans in Cyprus, $US46 million in Greece, and $US194 million in Spain.
While many European banks have come under pressure to repatriate capital to home markets, the trend suggests Australian banks are increasingly willing to spread their wings overseas. The bulk of Australian bank lending is to Western nations, but the big four lenders are eyeing Asia as a key source of growth, with domestic credit growth showing few signs of returning to the boom years before the financial crisis.
During the December quarter of 2012, growth in demand for credit from domestic households remained near record lows.
Bullish sentiment towards the banks this week pushed the share prices of Westpac and Commonwealth Bank to record highs - with Westpac's market capitalisation breaking through $100 billion for the first time.
Frequently Asked Questions about this Article…
Australian banks sharply increased lending to Europe in the December quarter of 2012, with locally based bank lending to European nations rising by about US$15.8 billion and total exposure to the region reaching roughly US$200 billion, according to preliminary BIS data.
The largest increases were centred on Germany, where claims jumped to US$13.8 billion from US$9.2 billion the prior quarter. Lending to the UK also rose by about US$8.6 billion to roughly US$157 billion, while exposure to France and Ireland each increased by close to US$700 million to about US$7.6 billion and US$3.2 billion respectively.
Yes. Preliminary Bank for International Settlements (BIS) data showed Australian banks’ lending to the US rose by more than a quarter in the quarter, taking exposure to about US$100.9 billion.
No. Despite the overall lift in European lending, Australian banks’ outstanding loans to the most troubled eurozone economies remained negligible by comparison: about US$101 million in Cyprus, US$46 million in Greece and US$194 million in Spain.
The rise in Australian lending to Europe occurred even as global interbank lending contracted by around US$405 billion in the quarter. The BIS noted that government borrowing, rather than banks lending to each other, drove much of the credit market activity and highlighted divergent trends between credit to banks and to non-bank counterparties.
The article links the increase to improving market sentiment and hopes of a global economic recovery. At the same time domestic demand for credit stayed near record lows, so Australian lenders — particularly the big four — were looking overseas, including Asia, as key sources of growth.
Yes. Bullish sentiment toward the banks helped push the share prices of Westpac and Commonwealth Bank to record highs during the week referenced, with Westpac’s market capitalisation breaking through A$100 billion for the first time.
Everyday investors should note that in late 2012 Australian banks raised exposure to Europe and the US while keeping very limited lending to the most troubled eurozone countries; global interbank activity was contracting at the time and government borrowing was prominent; and the domestic credit cycle remained weak, prompting banks to pursue overseas growth opportunities.
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