Banks up lending to Europe
Australian banks sharply lifted their lending to the troubled economies of Europe late last year, as hopes rose of a global recovery and domestic credit growth remained in the doldrums.
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.