World lending slumps by 40%

International lending contracted sharply in the first quarter of this year, amid delayed recovery and weak credit demand in industrialised countries.

Net financing by international banking and securities markets slumped more than 40 per cent to USdollars 60bn ( pounds 31.2bn) from dollars 105bn in the first quarter of 1991.

The new figures, published in a review of banking and financial developments by the Bank for International Settlements, bring the total for international financing over the year to the end of March to dollars 200bn.

That amounts to just 40 per cent of the total lendings of dollars 520bn in the previous 12-month period. The BIS said the year-on-year decline was a consequence of a sharp dollars 83bn dive in interbank lending.

The Japanese withdrawal from the interbank markets was a significant factor in this decline.

Faced with a falling stock market, Japanese banks also had to contend with slowing domestic and global credit demand, heightened credit concerns, and meeting international capital adequacy requirements.

'Japanese banks thus scaled back their foreign currency business at home and reduced their external bank positions,' the BIS said.

The decline in interbank lending also reflects shrinking domestic loan demand in those industrial countries affected by recession.

In economies where economic growth and confidence are low and interest rates are high, few companies are seeking new loans for expansion. Banks have also tightened their reins on lending because of credit quality concerns.

The BIS also said that new bank credit in the year to March rose by only dollars 55bn internationally, less than one seventh of the dollars 405bn increase in new lending in the previous 12 month-period.