Bank lending shrinks further

LONDON (Reuters) - International bank lending dropped by over $300 billion or 1.1 percent in the second quarter as the financial crisis continued to restrain credit, according to Bank for International Settlements data.

Lending to the non-bank sector between April and June did expand for the first time since the third quarter of 2008, however, increasing by $48 billion, or 0.5 percent.

That was more than offset by a contraction in interbank lending of $375 billion, or 2 percent, at constant exchange rates.

The pace of overall decline slowed from an $800 billion contraction in the first quarter, or 2.6 percent.

The statistics -- the only ones to chart cross-border lending around the world -- show how banks have been cutting off funds to companies and to each other despite efforts by governments and central banks to unlock jammed credit markets.

Adjusted for exchange rate movements, lending was stable in the second quarter after four consecutive quarters of decline, according to BIS, which is the coordinating body for the world's central banks.

Cross-border lending shrank by over $6 trillion in the year to the end of March, at adjustable exchange rates.

International borrowing had been rising steadily in the three decades that BIS has kept tabs on it as the global economy raced ahead, but has tumbled from its March 2008 peak.

(Reporting by Steve Slater; Editing by David Cowell)