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14 april 2015

The financing model is evolving

Business are increasingly using the financial markets and banks are actively helping them find new sources of financing.

 

Out of total corporate financing of 1,356 billion as of the end of December 2014, the proportion of bank lending to market financing was 62%/38% (compared to 70%/30% at the end of 2009)(1). This will be a major challenge for the Capital Markets Union, wished by the European Commission, to allow financial players to accompany this evolution.

Initiatives supporting SMEs and ISEs

The changing funding model and the access to market funding required by SMEs ans ISEs is prompting French banks to support European actions that can develop securitisation and to participate in a number of initiatives.


Since March 2014, French banks have been campaigning to distribute PEA-PME plans (SME equity saving plans) to those customers showing interest in this type of investment. This new product is expected to play a role in channelling savings towards long-term investment in corporations as French banks have been advocating for a number of years.


The launch of the "Charter for Euro Private Placements" (Euro PP)(2) is a quantum leap for corporate financing. The Charter, which was drafted by the Euro PP working group organised under the auspices of Banque de France and the Paris Chamber of Commerce and Industry and signed by 10 professional organisations in April 2014, is designed to facilitate financing for SMEs ans ISEs, whether listed or not, which would otherwise be unable to access the international bond markets, primarily because they have not been rated by an agency. By establishing a reference framework and best practices for French and international institutional investors, the Charter has created the conditions for the development of the Euro PP market.


The issue of guaranteed debt instruments by the new issuer Euro Secured Notes Issuer (ESNI), beginning in April 2014, gives the Paris financial marketplace yet another tool to support financing to SMEs and ISEs: these notes give greater liquidity to bank loans granted to businesses meeting eligibility requirements for the Eurosystem's refinancing operations. Such high-quality securitisation complies with high standards of transparency, simplicity and security. It is strongly supported by the Banque de France.

Promoting long-term financing

The European Commission's Investment Plan will unlock public and private investments in the real economy of at least €315 billion over the next three years. As part of this initiative, the European Fund for Strategic Investments is being set up to take on the riskier tranches in investment projects so as to provide first loss protection, thereby maximising risk-taking by banks.


That said, the mobilisation of long-term funds requires a fiscal, economic and regulatory environment providing banks with the means to set up long-term financing. A number of future European reforms will have direct effects on the capacity of banks to muster funds for the economy.



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(1) Banque de France, Bank indebtedness and market-based debt of non-financial corporations, March 2015

(2) A Euro PP is a medium or long-term financing transaction between a company and a limited number of institutional investors, based on deal-specific documentation negotiated between the borrower and the investors, generally with the participation of an arranger.

 
 
 
 
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