International bank lending to China has peaked - BIS

LONDON (Reuters) - - International bank lending to China probably peaked in 2014 as efforts by the country's authorities to rein in its financial sector and head off a lending bubble took effect, a closely watched central banking report said on Wednesday. A quarterly report from the Bank for International Settlements (BIS) said cross-border lending by banks to China from June to September 2014 was up 40 percent year-on-year but rose only 3 percent from the previous quarter. The BIS, often referred to as the 'central bankers' central bank', said international claims on Chinese banks fell in the third quarter, indicating "efforts by authorities to tighten credit conditions in the banking sector have started to have an impact". However, the organisation also warned that a slowing of cross-border financing to China could exacerbate any downturn in the domestic financial cycle. In a study of early warning indicators for the domestic banking crisis, the BIS has flagged China as being in the highest risk category based on its high debt to GDP ratio and the high proportion of incomes spent on servicing debt and paying interest. "The possible turn in domestic financial cycles as U.S. dollar funding is set to tighten deserves close watching," said Claudio Borio, Head of the Monetary and Economic Department at the BIS in a conference call. Concerns are mounting among international investors of a credit bubble developing in China, with the country's property market seen as the biggest risk to the economy and worries that the government may have to patch holes in over-extended banks. The last BIS quarterly report showed China had become the largest emerging market destination for international bank lending, accounting for more than a quarter of all cross-border claims on all emerging market economies. Cross-border financing "boosts the upswing of domestic financial cycles and, through an eventual reversal, accentuates the subsequent bust", the BIS warned. The report also showed that international bank lending to Russia fell sharply in late 2014, which the BIS blamed on falling oil prices and international sanctions over Moscow's role in the Ukraine crisis. Cross-border claims to Russia contracted by $11 billion between June and September last year, contributing to a cumulative year-on-year decline of 15 percent, the BIS said. The overall global trend was for increasing banking activity, however, with cross-border lending rising 3 percent in developed economies, 5 percent in the United States and 11 percent in emerging economies, the BIS said. Claims on emerging markets have exceeded levels last seen before the financial crisis, standing at $3.9 trillion in September 2014, compared with $2.7 trillion in the first quarter of 2008. (Reporting by Chris Vellacott, editing by Gareth Jones)

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