Europe banks aim to win top spot for loans
European banks dominated international lending to China in the last six months of last year and are rapidly encroaching on the leading position in Hong Kong commanded by Japanese banks, the Bank for International Settlements (BIS) says.
As more European companies turned their attention to the region, after years of preoccupation with the single European market and Eastern Europe, the continent's banks were gaining rapid exposure to Asia, economists said.
International lending to the mainland had also become increasingly short-term and increasingly directed to the non-bank private sector, the BIS said in its biannual Maturity, Sectoral and Nationality Distribution of International Bank Lending report.
Among Europe's biggest lenders, the fastest growth was by British banks, whose claims had soared 60 per cent to US$5.7 billion by the end of last year, compared with $3.6 billion at the end of 1995. French banks still had the lion's share of claims, with $7.5 billion, but German banks saw a 31 per cent jump to $6 billion by the end of last year.
The report said European banks reporting to the BIS had claims of $26.05 billion in China by the end of last year, a 28 per cent increase on the previous year.
In contrast, Japanese banks had claims of $17.8 billion, up only 0.88 per cent, and North American banks had claims of only $3.4 billion, a 58 per cent increase.
The report noted that new consolidated claims in China, in the last six months of last year had dropped to $4.7 billion from $6.2 billion, but that claims had become increasingly short-term. Claims up to and including one year constituted 48.9 per cent of consolidated claims, by the end of last year, compared with 47.6 per cent at the end of 1995.
Lending instruments with maturities of more than two years were the second largest, worth $19.5 billion, or 35.5 per cent of consolidated claims.
'In China, a combination of trade financing and funding of foreign direct investment and private sector projects meant that nearly two-thirds of the new funds were directed to the non-bank private sector,' the report said.
European banks also had the largest outstanding claims to Asia, excluding offshore centres such as Hong Kong and Singapore, contributing 42.2 per cent of the $367.1 billion of claims.
While European banks had accompanied European companies, in the seeking and winning of contracts in Asia, they had also benefited from the Asian preference for bank lending rather than capital market financing.
The BIS said German, French and British banks all exceeded Japanese bank claims as they sought the relatively high margins paid on project-related structures, which accounted for a large proportion of syndicated loan facilities arranged for Asian borrowers.
In contrast Japanese bank exposure to Asia dropped from 36.8 per cent of claims by the end of 1995, to 32.3 per cent by the end of last year as high foreign funding costs and difficulties in the domestic market affected exposure.
There had also been a sharp withdrawal from Thailand, which had been a main Japanese focus of foreign expansion in 1994-95.
Most claims in Hong Kong were held by Japanese banks. They had claims of $87.5 billion, down about 34 per cent from the $133.1 billion of claims recorded in the six months to the end of 1995, the BIS said.
European banks, reported claims in Hong Kong were up 9 per cent in the last six months of last year, to $86.2 billion. North American bank claims grew 22 per cent to $12 billion by the end of 1996.