Europeans pull money from Australian banks

Overseas banks pulling funds out as squeeze hits home

BANKS from Europe's stressed economies pulled a further $US16.6 billion from Australia towards the end of last year, as they began feeling the funding squeeze in their home markets.

The Age,

27 April, 2012

The preliminary figures, released by the Swiss-based Bank for International Settlements, show the pace that funds were cut from Australia accelerated as Europe's financial crisis intensified.

The December-quarter fall was more than double the $US8 billion pulled by major European banks during the September quarter.

Towards the end of last year, European banks were unable to raise funds on wholesale markets. And for those banks rolling over short-term loans, costs surged to levels last seen at the peak of the financial crisis.

This meant that during the second half of last year, most European banks began selling down their international loan portfolio or turning off the lending tap.

This represents a major headache for business, given some euro area banks are bigger players in trade finance and other specialised lending areas, such as leasing and project financing.

The Reserve Bank recently noted constraints on euro area banks pose a risk that ''they will further inhibit credit supply''.

However senior bankers said Asian banks, particularly from Japan, have become more active in terms of financing large corporates in the market.

The BIS figures, which cover October to the end of December, show French banks pulled more than $US4.3 billion of loans from the Australian economy from the September quarter.

German banks cut $US4.6 billion of loans. Irish banks shed hundreds of millions of dollars of loans although Spanish banks increased their exposure slightly by $US100 million to $US4.1 billion.

Even some British banks sought to return money home by pulling $US5.9 billion from Australia during the quarter.

Funding conditions have improved after the European Central Bank's offer of more than €1 trillion ($A1.2 trill- ion) of cheap loans to the region's banks since December. Confidence has also picked up on the back of the Greek debt restructuring, but renewed concerns have emerged over the economic health of Spain and Italy.

European banks have been reducing their activity in the Australian market over recent years, while Asian-owned banks have become more prominent.

European banks' share of business lending has fallen about 4 percentage points since early 2009, while Asian-owned banks have lifted their share by about 2 percentage points, separate figures from the Reserve Bank show.

Much of the pullback by European-owned banks has been in commercial property lending, where total exposures have fallen about 60 per cent since 2009, compared to a 16 per cent fall by the broader bank sector in the same period.