European banks slashed their exposure to Australia's economy by more than $US30 billion in the year to September, according to figures from the Bank for International Settlements.

With stiff competition squeezing profits in institutional lending, figures published last week show banks from Europe, especially Britain and Switzerland, have scaled back their loans to Australia significantly.

Total exposure of European banks fell to $US203 billion in the September quarter. Credit:Bloomberg

Total exposure of European banks fell to $US203 billion in the September quarter, the figures show, continuing a decline triggered in the aftermath of the global financial crisis.

British banks cut their exposure by almost $US19.9 billion over the year, while Switzerland's lenders cut the value of their portfolios by more than $US11.2 billion.