Upbeat data hints at bank loans revival

BANK lending is showing signs of revival after drying to a trickle in the depths of the financial crisis, data from the Bank for International Settlements (BIS) showed yesterday.

International bank lending slowed in the third quarter of last year by 0.8 per cent, or $235bn (£145.6bn), to $30.6 trillion, the BIS said, adding that this marked the lowest rate of decline in a year.

The slight improvement will be welcome news for central banks, which have been vocal in attempts to persuade the wider banking sector to increase lending – both to other banks and to the private sector – in order to stimulate economic growth.

Cross-border lending to banks in developed countries fell by one per cent, or $181bn, between July and September after dipping two per cent in the second quarter. Total inter-bank lending contracted for the fourth consecutive quarter, by $224bn.

Among the non-bank sector, brisk activity in the emerging markets, where lending jumped by three per cent over the quarter, was offset by a dip in lending in developed countries.

The figures came as Jaime Caruana, the head of the BIS, warned international coordination on measures to reform the banking sector would be crucial to its future health.

Speaking from the World Economic Forum in Davos, Caruana said US proposals to curb the size and activities of large banks sent a “strong message”.

But he added: “I think it’s very important that these things are coordinated. We are in a global world and that requires global solutions.”

Caruana also said policymakers should take seriously the risk of leaving liquidity support in place for too long, after the US Federal Reserve on Wednesday restated its intention to withdraw its mortgage-backed securities (MBS) purchase programme – the country’s equivalent of quantitative easing – in March. “It’s a narrow path,” he said. “The chaos was avoided, and now we really have to think about how all the extraordinary measures are withdrawn with the necessary flexibility.”