Europe banks lift local exposure

European banks have increased their lending to Australia for the first time since early 2011, as the lift in global confidence leads to a tentative recovery in credit markets.

European banks have increased their lending to Australia for the first time since early 2011, as the lift in global confidence leads to a tentative recovery in credit markets.

After pulling nearly $80 billion in funds from the economy in recent years, European banks increased their exposure to Australia to $12 billion in the September quarter, figures from the Bank for International Settlements (BIS) show.

It is the first quarterly rise in European bank lending to Australia since the 2011 March quarter, when financial markets went into a tailspin over fears that major economies such as Italy and Spain would be sucked into the region's crisis.

The increase, which came as global market confidence rebounded sharply, was driven by a $3.6 billion rise in lending by German banks, with Dutch lenders also raising their exposure to Australia by $2.3 billion.

It comes as bankers report tentative signs of a more active role from European banks - which play a significant role in funding the Australian resources sector.

NAB's director of debt market origination, Stephen Boyd, said there were indications that eurozone banks may be lending more to Australia because the funding costs of many banks had improved.

"It's early days but we are probably seeing more appetite from certain European lenders," he said. However, he said it was "not like we are getting back to pre-GFC levels".

Lenders from the troubled eurozone have been rapidly withdrawing funds from the Asia-Pacific region in recent years as they repatriate capital to their home markets, with European bank loans to Australia falling from $314 billion in 2011 to $239 billion last year.

In the September quarter, however, global financial market confidence received a jolt when European Central Bank president Mario Draghi pledged to do "whatever it takes" to save the region.

Alongside the bounce in European lending, Japanese banks also increased their lending to Australia by $7 billion - a trend that is likely to reflect their central role in several major resources projects.

The figures were contained in the BIS quarterly review, which showed lending to advanced economies globally edged up by 0.5 per cent in the September quarter, the first increase in nine months.

In a separate report published on Monday night, the BIS also called for an overhaul of pricing gauges used by banks when lending to one another, as the sector continues to feel fallout from the LIBOR-rigging scandal.

The report said there was an urgent need to improve "reference rates" used as a benchmark for inter-bank transactions worth trillions of dollars so that the rates reflected real loans, rather than bankers' estimates, which are more open to manipulation.

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