Banking crisis reversing EU’s single market

Tim Wallace
Follow Tim
EUROPEAN banks are contracting foreign lending so far and so fast that it is reversing the single market in finance, according to a Deloitte report published yesterday.

The warning came as new European Central Bank (ECB) data showed bank lending to the private sector slumped 0.8 per cent in the Eurozone in September, accelerating on the 0.6 per cent fall in August and the 0.4 per cent drop in July.

On the year, credit extended to the private sector fell 1.3 per cent. However, lending to the public sector jumped 8.3 per cent.

Deloitte’s bank survey found cross-border lending by European banks fell 41 per cent from its 2008 peak to the start of 2012 – a contraction of $5.1 trillion.

“Despite the sharp contraction already experienced, the Deloitte bank survey found that banks expect this de-globalisation trend to continue,” said the report.

“Having completed much of their deleveraging outside of Europe, 88 per cent of respondents are looking to divest assets in Western Europe.”

Those divestments are most likely to come in the form of commercial real estate, infrastructure and structured finance portfolios.

The study found almost 80 per cent of banks see “price agreement” as a sticking point in agreeing asset sales.

But as financing conditions have improved in the last six months, private equity firms have been more willing to buy, and banks have made more aggressive provisions against the portfolios.

Deloitte expects buyers and sellers to “meet in the middle,” leading to an increase in volumes soon.