Deleveraging by Western banks in some emerging markets continued in the second quarter, when cross-border claims on advanced economies also contracted, preliminary data for the end of June showed on Monday.
The data showed a 1.9%, or $596 billion, contraction in cross-border claims of BIS reporting banks to $29.4 trillion at the end of June from the end of March, adjusted for exchange rate movements.
Interbank claims fell by $609 billion, the fifth-largest quarterly contraction on record, with cross-border claims on banks in the United Kingdom and the United States contracting the most, by $189 billion and $152 billion respectively. Interbank claims on banks in the eurozone shrank by $75 billion in the second quarter from the first.
“The large contraction in overall cross-border claims was the result of reduced credit to banks in advanced economies and offshore financial centres,” the BIS said in a statement.
The BIS defines claims as being financial assets (on-balance sheet only) including deposits and balances with other banks, loans and advances, and holdings of debt securities.
Cross-border claims on non-bank borrowers were up $12 billion.
Reporting banks’ cross-border claims on borrowers in emerging economies expanded by $5 billion, or 0.2% in the second quarter from the first, with cross-border claims on borrowers in Asia-Pactific rising the most, by $25 billion.
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But some banking systems reduced their claims on emerging Asia while others expanded, the statistics revealed.
US banks reported at $17 billion drop in exposure, primarily to banks in India and South Korea, while some European banks – in particular UK, Swiss and French banks – also reported “relatively large contractions” in claims on Asia-Pacific, the BIS said. “By contrast, the foreign claims of other banks, especially Asian banks, increased,” it said.
Among emerging markets, total cross-border claims decreased the most in Africa, by $15 billion, and in emerging Europe, where they shrank by $11 billion. In Latin America, they increased by $5 billion in the second quarter.
Reporting banks’ consolidated exposures to banks in the eurozone fell by an estimated 4.5% in the second quarter from the first, to $1.6 trillion.
The statistics indicate “a growing bifurcation in reporting banks’ exposure to euro area sovereigns,” the BIS said.
Eurozone banks continued to trim their exposures to Greek, Irish, Italian, Portuguese and Spanish public sector borrowers by a combined 7% to $201 billion, but at the same time both eurozone banks and other banks shifted their exposure to other countries in the single currency area, with estimated exposures to the public sector in Germany and France growing the most.