Euro zone banks cut
cross-border lending as stability fears grow
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[February 27, 2017]
By Francesco Canepa
FRANKFURT (Reuters) - Euro zone banks have
cut lending to their peers in other members of the currency bloc over
the past year, European Central Bank (ECB) data showed on Monday, as
questions mounted about the health of some lenders and the very future
of the euro.
Loans between banks and to the rest of the economy have been growing in
a slow but steady fashion for the past 1-1/2 years but this picture
belies increasing fragmentation along national borders.
The retrenching makes euro zone countries more vulnerable to domestic
downturns and contradicts the ECB's objective to create a banking union
in which credit flows wherever it is needed.
Triggered by the 2008 financial crisis, banks' retreat to their home
turf had paused in 2014-15 as markets calmed, largely thanks to ECB
But it resumed last year amid increasing tensions in countries such as
Italy, where a handful of banks including the third-largest, Monte dei
Paschi <BMPS.MI>, failed to raise capital and may need state help.
"We havenít had consolidation in the banking sector and a cleaning up of
issues that banks have to deal with," Martin Goetz, a professor at the
University of Frankfurt, said.
"Banks are more problematic as credit risk and as a result other banks
are lowering their credit exposure to them."
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The European Central Bank (ECB) headquarters is pictured in
Frankfurt, Germany, January 21, 2015. REUTERS/Kai Pfaffenbach/File
Cross-border loans between euro zone banks were down 6 percent year on year to
1.26 trillion euros in January 2017, having hit the lowest level since 2004 one
month earlier, the ECB data showed. They had surpassed 2 trillion euros in 2008.
Loans between banks in the same country rose 11 percent in the year to January
to 4.6 trillion euros, according to Reuters calculations on ECB data.
Banks in Germany, France and Luxembourg, where cash is at its most abundant,
have all cut their cross-border lending over the past year, the data showed.
The ECB does not provide break-up figures of where the cross border loans are
Fears about countries falling out of the currency union were also likely to play
a role in banks' decision.
Ralph Hamers, chief executive of ING <INGA.AS>, told the Financial Times earlier
this year that the Dutch bank was seeking to match more closely its loans and
deposits in each European country.
(Editing by Ed Osmond)
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