Chinese banks sixth-largest global creditor group: BIS

LONDON (Reuters) - Chinese banks have significantly stepped up their lending activities in recent years to rank now as the sixth-largest international creditor group, the Bank for International Settlements (BIS) said on Sunday.

A worker stands on a bank on the Huangpu River near the financial district of Pudong in Shanghai, China September 13, 2017. REUTERS/Aly Song

The BIS, an umbrella body for global central banks, said in its latest report that Chinese banks had cross-border financial assets worth about $2 trillion as of the third quarter of 2017.

As Chinese banks lend abroad largely in U.S. dollars, in absolute terms this makes them the third-largest provider of U.S. dollars to the international banking system, the BIS added.

“Their global footprint encompasses not just emerging market economies, but also advanced economies and offshore centers worldwide,” the BIS said.

But while highlighting the role of Chinese banks as an important source of credit globally, the BIS paper also warned on borrowers’ reliance on a “common lender”, noting this had exacerbated past Asian financial crises.

This refers to a situation in which several countries borrow from just a few big international banks, raising the risk that losses in one country encourage the banks to withdraw from other borrower countries as well.

“Contagious spillovers can thereby spread the turmoil around the globe,” the report said.

For example, at the time of the Asian financial crisis of 1997-98, Japanese banks dominated lending to emerging Asia - namely Indonesia, South Korea, Malaysia, the Philippines and Thailand - holding 42 percent of international consolidated claims on the five countries.

While Japanese banks subsequently cut exposure, European banks took over as leading lenders to the region, with euro area banks holding 35 percent of claims by mid-2008. Japanese lenders had 15 percent.

But when the global financial crisis of 2007-09 hit, followed by the European sovereign debt crisis of 2010-12, euro zone banks cut their lending to Asian borrowers.

Since then, emerging Asia’s overseas borrowing has shrunk relative to regional gross domestic product. International consolidated claims of BIS reporting banks on five Asian borrower nations had shrunk to 11 percent of their combined GDP, down from 21 percent in 1997.

While Japan still provides a quarter of its international borrowing, Chinese banks have become an increasingly important provider of international bank credit, to borrowers both within and outside Asia, the BIS said.

Emerging Asia creditor exposure:

Reporting by Claire Milhench; Editing by Dale Hudson