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 UK's 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 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…
According to preliminary Bank for International Settlements (BIS) data cited in the article, Australian banks increased lending to Europe as financial markets rallied on growing hopes of a global economic recovery. The move also reflects domestic credit growth remaining weak, so lenders looked overseas for opportunities.
The article reports a US$15.8 billion jump in locally based bank lending to European nations in the December quarter, taking total exposure to about US$200 billion, based on preliminary BIS figures.
The sharpest changes were to Germany, where claims rose to US$13.8 billion from US$9.2 billion the prior quarter. Lending to the UK also rose by US$8.6 billion to 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.
No. The article describes Australian banks' lending to those troubled economies as negligible: outstanding loans were around US$101 million in Cyprus, US$46 million in Greece, and US$194 million in Spain.
Lending to the United States rose sharply as well — the article states it jumped by more than a quarter to US$100.9 billion, according to the preliminary BIS data.
The rise in Australian exposure to Europe ran counter to a broader fall in global inter‑bank lending, which contracted by US$405 billion in the quarter. The BIS noted that government borrowing, rather than inter‑bank lending, drove credit market activity in that period.
The article indicates domestic demand for credit remained near record lows in the December quarter of 2012, prompting Australian banks to look overseas for growth. While most lending remains to Western nations, the big four lenders are also eyeing Asia as a key source of growth.
Bullish sentiment towards the banks pushed share prices of Westpac and Commonwealth Bank to record highs during the week covered by the article. Notably, Westpac's market capitalisation broke through the US$100 billion mark (as reported in the article) for the first time.
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