European banks cut their exposure to the Gulf by US$18.4 billion (Dh67.5bn) during the final quarter of last year.
Banks in the UAE and Saudi Arabia had to bear the brunt of the funding squeeze, according to the latest data from the Bank for International Settlements (BIS).
Data from the organisation of central banks showed loans by international financial institutions to borrowers in the Gulf, excluding interbank lending, fell $7.3bn during the quarter.
The effect of euro-zone bank deleveraging ahead of Greece's default in February has sapped cross-border lending levels across the globe, with claims falling by $799bn or 2.5 per cent during the quarter, the BIS said.
"During the fourth quarter of 2011, BIS reporting banks recorded their largest fall in aggregate cross-border claims since the drop following the Lehman Brothers collapse three years earlier," the bank said.
"The decline was worldwide, although it was driven by the deleveraging of banks headquartered in the euro area."
Loans outside the banking sector in the UAE decreased by 4.4 per cent to $54.8bn, and by 7.7 per cent to $43.1bn in Saudi Arabia, both of which are home to the biggest borrowers in the region.
However, deposits to international banks in the Gulf increased by 1.2 per cent during the quarter to $392.9bn, most of which was accounted for by lenders depositing an additional $8.4bn in funding in Qatar.
Last year's worldwide fall in lending may have been mitigated to some extent by the €1 trillion (Dh4.56tn) in funds pumped into the banking system by the European Central Bank, beginning in December last year, via so-called long-term refinancing operations (LTRO).
But because euro-zone banks had recycled this capital through their own countries' bond markets, rather than through new loans, the decline in lending to the Gulf is unlikely to have halted during the first half of this year, said Giyas Gokkent, the chief economist at the National Bank of Abu Dhabi.
"I don't think the problem is solved," he said. "Banks in individual countries … have borrowed through the LTRO and bought their own country's bonds."
In the meantime, renewed fears around the euro-zone sovereign debt crisis following last month's inconclusive elections in Greece have hammered European equities and pushed the euro to a two-year low against the dollaron Friday at $1.2327. During the first quarter of the year, lending by UAE banks ground to a halt, with total loans increasing only 0.3 per cent, according to the latest data from the Central Bank.
HSBC, the biggest international lender operating in the Emirates, said in its quarterly earnings statement that its lending in the Middle East and North Africa shrank by 0.8 per cent during the first quarter, to $27.3bn. International banks operating in the Gulf had been much more reticent to lend ever since the collapse of Lehman Brothers in 2008, Mr Gokkent added.
"Even before the need for euro-zone bank deleveraging, simply because of the issues that emanated in the Gulf, they cut back selectively after 2008," he said. "What's for sure is that whatever the reasons for the less liquid position of the banking system ... capital markets were tapped to a greater extent than in the past."
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