The mainland suffered a sharp drop in international lending in the first quarter of the year, after a 'window-dressing transaction' that inflated volumes in the previous quarter was unwound. The Bank for International Settlements (BIS) disclosed in its quarterly International Banking and Financial Market Developments report that lending to the mainland slumped US$3.74 billion to $79.5 billion. Bankers had expected lending flows to drop sharply in the last quarter of 1998 as investor sentiment soured in the wake of the collapse of the Guangdong International Trust and Investment Corp. The BIS revealed, however, that the mainland saw a surprise $1.01 billion rise following a book-keeping exercise involving a mainland bank and its foreign affiliate, affecting both sides of its balance sheet. Bankers believe the transaction involved the Bank of China sending funds to its branch in Japan, which were then channelled bank into the mainland and, as a result, boosted lending volumes. The BIS said the drop in lending volumes in the first quarter of this year, 'was more than accounted for by the unwinding of a window-dressing transaction in the fourth quarter between a major Chinese bank and one of its foreign affiliates'. A request by the BIS for an explanation for the transaction is understood to have met with little response from Beijing. Lending volumes to Hong Kong were down $37.8 billion to $461.3 billion in the first quarter of the year, compared with only a $4.8 billion reduction in the previous quarter, and over a third of the total drop in lending last year. BANKING
