Hong Kong lending is set to fall this year in the face of increasingly tough economic conditions, contrasting with the 10.9 per cent increase in total loans and advances in 2008. Total loans increased to HK$3.28 trillion last year from HK$2.96 billion in 2007, the latest figures from the Hong Kong Monetary Authority show. Lending, however, has been declining in recent months, with total loans shrinking 4.1 per cent in the fourth quarter from the third quarter last year. Loans for use in Hong Kong contracted 3.4 per cent. 'Most types of loans declined [in the last quarter] amid the worsened global financial crisis,' said the de facto central bank, adding that lending to financial companies shrank 5.4 per cent and trade financing loans declined for a consecutive quarter. Loans to finance Hong Kong's visible trade fell 15.8 per cent during the quarter, while loans to finance merchandising trade not touching Hong Kong dropped 17.5 per cent. Stanley Wong Yuen-fai, an executive director at ICBC (Asia), said lending in the second half of last year, particularly in the fourth quarter, had contracted substantially as a result of the uncertain economic outlook amid the financial crisis. He said it was highly likely that lending in the first half of this year would decline compared with last year but might increase slightly in the second half if economic conditions improved. 'It's quite likely that total lending this year will fall compared with last year,' he said, adding that both loan demand and supply could be lower this year. Many companies had cut back expansion plans while lenders were more careful about lending amid the current market environment. University of Hong Kong economists predicted earlier this month that the city's economy probably contracted year on year in the last quarter for the first time since 2003, based on the severe credit tightening and weakness in domestic demand. Lenders including Hang Seng Bank last month revised down Hong Kong's 2009 gross domestic product forecast from no growth to a contraction of 3 per cent. Mr Wong said the growth of total lending last year was partly due to the robust economic conditions in the first half and partly a result of the appreciation of the yuan that prompted many mainland companies to seek loans in Hong Kong. However, the yuan's appreciation against the US dollar stalled in July after rising 21 per cent in the three years since the currency reform in July 2005. Yuan deposits in the city declined for a seventh consecutive month, falling 9.47 per cent last month to 56.06 billion yuan (HK$63.42 billion) from 61.92 billion yuan in November. However, deposits still surged 67.84 per cent last year from 33.4 billion yuan at the end of December in 2007. Mr Wong expected yuan deposits could rise again this year if companies were allowed to open yuan deposit accounts when yuan trade settlement was implemented.