Int’l banking activity contracts in Q3 – BIS

MANILA, Philippines - The third quarter of 2013 saw another sizeable contraction in international banking activity. Between end-June and end-September 2013, the cross-border claims of banks fell by $508 billion, or 1.8 percent to $28.5 trillion.

According to the Bank for International Settlements (BIS), interoffice positions accounted for most of the contraction, continuing the steady decline in such positions evident since late 2011.

Cross-border claims on non-bank borrowers - mainly non-bank financial institutions, governments and corporations - fell only slightly between end-June and end-September 2013, by $37 billion or 0.3 percent.

“That said, this was the second consecutive quarterly decline and partially reversed the modest increase seen in 2012,” the BIS said in a press statement.

Emerging markets cross-border claims collectively increased by $57 billion or 1.6 percent in the third quarter. However, increases were concentrated in a few emerging market countries, notably China, whereas declines were widespread.

This was the second consecutive quarterly decline and partially reversed the modest increase seen in 2012.

The slowdown in cross-border lending in Q3 2013 coincided with a period of volatility in global financial markets, after announcements in May that the US Federal Reserve envisaged phasing out quantitative easing (QE) precipitated a mid-year tightening of financial conditions worldwide.

The overall contraction in cross-border claims in the third quarter of 2013 was again driven by interbank positions, which in the locational banking statistics, include positions with related offices as well as unrelated banks.

Such business contracted by $471 billion, or 2.8 percent, between end-June and, end-September 2013.

The magnitude and duration of the decline in interbank positions since 2011 are similar to those seen during the global financial crisis of 2008–09. The locational banking statistics by residence indicate that interbank positions (including inter-office transactions) fell by a cumulative $2.9 trillion (15 percent) between end-September 2011 and end-September 2013. This compares with a cumulative fall of $3.1 trillion (14 percent) between end-March 2008 and end-December 2009.

“Despite this broad similarity, interbank developments in 2011–13 differed profoundly from those in 2008–09,” the BIS pointed out.