European banks slash local lending

European banks slash local lending

EUROPEAN banks have cut their lending to Australian business by almost $20 billion due to the eurozone crisis, and they are likely to continue retreating from the market, new analysis has found.

After the weekend’s agreement to boost support for Europe’s banks, a report by Barclays economist Kieran Davies said European corporate lending to Australia had fallen by more than 30 per cent from its peak in 2009.

European banks’ corporate loan book in Australia had plunged from almost $60 billion to $40 billion over the period, in stark contrast to annual growth of 20 per cent before the crisis. Mr Davies said the trend had further to run because outstanding loans that were approaching maturity are unlikely to be rolled over.

”Some of those banks do have less capital to play with, and their regulators and shareholders are urging them to lend that money out to companies and households in their home bases,” Mr Davies said.

The prediction comes after the European leaders agreed to extend more support to the region’s struggling banks at the weekend, sending global markets surging.

European banks are responsible for almost 10 per cent of business lending in Australia. However, Mr Davies said their retreat from the market would not cause a corporate credit crunch in Australia because Asian banks are taking up much of the slack.

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