What proportion of the lending provided to companies consists of traditional bank debt versus alternative credit providers (including credit funds) and/or capital markets, and do you see any trends emerging in your jurisdiction?
Lending & Secured Finance
Croatia’s financial system can be classified as a bank-centric system where the majority of loans are provided by the banking sector. The Croatian National Bank only collects and publishes data in relation to the lending provided by the banking sector, where a continuing negative growth in respect of lending to companies has marked 2018. It is worth noting, that this data is coloured by the sale of numerous bank NPL portfolios, in which loans granted to companies have a significant role.
One of the trends that has recently been witnessed on our market is foreign financing provided to companies undergoing the pre-bankruptcy procedure, which trend, we presume, is mostly driven by the fact that Croatian banks are the major creditors of such debtors and therefore reluctant to provide further funds.
About two thirds of the lending are provided by financing banks. Especially for the operative financing and traditional investments like real estate they are most common lenders. In addition, large funds and private equity are the main sources of capital. In recent years, bonds have become increasingly attractive. Crowd funding projects are also getting more popular, but they are nowadays still marginal at the market.
Traditional bank financing has remained the primary source of debt financing for many Finnish companies. In 2018 the share of bank loans was approximately 31 % whereas, for example, the share of bonds was approximately 3,7 %. The share of financing provided by foreign lenders was in 2018 larger than loans provided by Finnish financial institutions. Credit funds have increased their presence in the lending market, but their share is still small compared to bank loans.
The role of alternative credit (e.g. credit funds, insurance companies) has increased considerably in recent years. In particular in the acquisition finance, real estate finance and asset based lending space there are a growing number of alternative credit available and the number of actual transactions where funding has been provided through alternative sources of credit has increased.
In general terms, traditional bank debt (e.g. bank loans and leasing) remains the most relevant source of lending for companies in Spain (as well as in the euro area) (EIB Group Survey on Investment and Investment Finance Country Overview: Spain ).
Consistent with the above, Spain has a low weight of shadow banking, which amounts to around 6% of the total assets of Spanish financial institutions. (Financial Stability Report, Banco de España ). However, we do anticipate a higher proportion of shadow banking in the following years as in other countries.
There is no comparative data available on this but based on limited public information, traditional bank financing continues to have the biggest share in lending in the Philippines. However, the participation of alternative credit providers such as mutual funds is growing. Capital markets are similarly developing and are expected to grow further given the relatively young but robust laws on securitization and the openness to a more connected and sustainable ASEAN capital market which the country has exhibited with the adoption of the ASEAN Capital Markets Forum Pass. For large and capital intensive projects, project financing is still the preferred alternative.
The Swedish lending market has traditionally been dominated by domestic and Nordic banks. The lending market has however been diversified during recent years and borrowers can now obtain funding from mezzanine lenders, direct lending funds and other alternative debt providers, as well as increasingly through corporate bonds. The traditional banks still account for the vast majority of the lending provided to companies in Sweden, but the alternative sources of funding provide borrowers with more options than previously.
December 2018 statistics show that approximately 96.1 per cent of the total credits extended to borrowers were made available by banks whereas this percentage decreases to approximately 2.3 per cent, 0.9 percent and 0.7 per cent of the total credits extended, by financial leasing companies, factoring companies, and financing companies respectively. Within the past three years, major infrastructure, energy, transportation projects have been funded through syndicated loans of banks.
Banks still heavily dominate the banking sector, even though factoring, financial leasing, financing companies and funds are beginning to strengthen their position and alternatives to banks emerge in the market and through legislation. Turkey has made significant reforms in its capital market securities, by rearranging existing securities and introducing new fund-raising models. The most noteworthy of these changes is the draft regulation on crowdfunding. With the proposed entry into force, investors may be entitled to raise funds by advertising their projects through crowdfunding platforms. We note that the Turkish financial regulators abstain from acknowledging and regulating blockchain, cryptocurrencies and initial coin offerings and remain sceptical on the usage of these capital markets instruments as a part of financing.
Alternative credit providers, such as private credit funds, business development companies and CLOs, comprise a significant proportion of lending to companies in the U.S. market. While traditional banks have focused on larger, broadly syndicated loan transactions, the amount of alternative credit provided in the U.S. market has increased in recent years on an absolute basis and relative to historical levels. Increased reliance by borrowers on alternative credit sources is due to a number of factors, including consolidation and increased regulation of the U.S. banking industry and an increase in competition from new private credit funds and other non-bank lenders. The competition between prospective lenders has enabled borrowers to enjoy tighter spreads, more relaxed credit underwriting and more flexible deal terms when compared against historical standards, particularly for transactions involving larger borrowers.
In terms of market trends, aside from the loosening of leverage and transaction terms, the U.S. leveraged lending market has seen continued interest in the unitranche debt structure (where traditional first-lien and second-lien credit facilities are combined into a single structure). Many borrowers view unitranche structures as a more straightforward and less burdensome alternative to traditional structures because borrowers need only comply with a single set of covenants and are able to avoid many intercreditor issues present in traditional structures. Although the use of unitranche facilities has steadily increased since 2014, a significant reduction in spreads for unitranche structures throughout 2018 spurred dramatic increase in demand for unitranche structures.
There is neither any statistics nor publically available data in Switzerland but in our experience, alternative lenders such as debt funds have not been able to gain significant market share. In that respect, the Swiss Non-Bank Rules are particular relevance. Typically, these lenders are regarded as non-bank lenders (see question 15 above).
Alternative credit providers and credit funds have a significant market share. Capital markets are strong and available at relatively low levels of debt. Traditional bank lending is though still an important and material component in the UK market and the international market funded through the UK. The proportions change with time and depending on the market (in particular between mid market and more liquid markets) but a key feature is increasingly hybrid funding, e.g. combining a credit fund backed unitranche with some syndicated term debt. There is also continuing fluidity in between markets and funding products in respect of the terms which are applied, e.g. the approach to EBITDA add backs.
Lending from Jersey banks tends to be limited to transactions involving local real estate or local businesses or in the context of private banking to global high net worth individuals.
A significant value of lending involves foreign financial institutions lending to Jersey corporate vehicles which hold foreign real estate assets. Such lending takes the form of bank debt arrangements from traditional financial institutions. Whilst alternative investment providers (usually in the context of a mezzanine lender) operate in providing debt to such corporate structures, the large majority of the lenders remain the traditional blue chip financial institutions.
The fund finance sector in Jersey continues to grow with local banks participating both in club and bilateral transactions to Jersey domiciled funds. These bridge facilities can range in size from £10 million to £250 million.
Listings on The International Stock Exchange of public and more specialist debt securities remain popular as do the use of Jersey corporates as issuers for high yield and corporate bonds.
Whether a company chooses traditional lending as against alternative credit, such as medium term notes issuance, will largely depend on pricing and interest rates and the availability of funding for traditional lending. It is difficult to quantify the proportion of traditional lending as against alternative credit. Generally both traditional lending and alternative credit are used by companies to obtain financing but it is ultimately a question of market pricing.
According to a recent survey, the biggest part of the lending provided to companies in Austria is still the traditional bank debt, whereas only a minor proportion of the lending consists of alternative financing options. The most important alternative financing options in Austria are venture capital, crowdfunding, private equity and business angels. The rest of the total lending provided to companies in Austria consists of subsidies, cash flow and equity capital.
The trend shows that companies are holding their proportion on bank finance, while the demand for alternative financing options is declining during the past two years.
As of the fourth quarter of 2018, the lending market was dominated by financial institutions (traditional bank debt and capital markets) with approximately 60% of the market, whereas development banks' share was approximately 9% and alternative financial entities was approximately 6.5%.
Bosnia & Herzegovina
Majority of funding is done through traditional banking. There is no official statistical data on the share of traditional banking lending in total corporate financing.