There has been a reduction of eight per cent in the net debt funding gap in Europe over the past year to EUR36bn, according to DTZ’s Debt Funding Gap report.
Nigel Almond, head of strategy research at DTZ, and lead author of the report says: “An improved outlook for capital values, more aggressive refinancing LTVs and an increase in the volume of write downs over the past year has helped to reduce Europe’s refinancing gap by 33 per cent over the past year to EUR51bn over 2014-15. The biggest gaps remain in the UK and Spain. However, both are down -- the UK by 18 per cent to EUR15bn and Spain is down 25 per cent to EUR13bn.”
In the absence of any new analysis by the IMF or other third parties, we have assumed a similar impact to the earlier stress testing impact study. This implied a 7.3 per cent reduction in deleveraging by 2013. Whilst progress has been made in some markets, we have also seen an increase in the volume of debt in some countries. This has in aggregate resulted in an increase of 50 per cent of the regulatory impact to EUR73bn. This has more than offset the reduction in the refinancing gap taking Europe’s gross debt funding gap to EUR124bn, nearly two per cent higher than a year ago.
Almond adds: “We continue to see growing activity from alternative sources of lending. This is helping to further diversity the market away from the historical dominance of the commercial banks. Over the past year we have seen clear evidence of the return of investment banks, with many now having multi-billion euro annual lending targets to deploy across Europe. In fact, their share on alternative funding sources has grown from 4 per cent a year ago to 17 per cent today.”
The growth in alternative sources of finance have helped to offset the increase in Europe’s gross gap leading to an eight per cent reduction in Europe’s net gap from EUR39bn to EUR36bn. With many lenders focussed on specific markets surplus capacity is emerging in some key markets, notably the UK, France and Germany.
Hans Vrensen, global head of research at DTZ and co-author of the report, says: “Based on our country level analysis, we identify surplus lending capacity of EUR45bn in the core European markets of the UK, France and Germany. In the past, we assumed that if a surplus was not used in a particular country, it would be lost. However, with the increased competition in the core lending markets and the re-emergence of investment banks, we now expect this surplus will be re-directed to markets with remaining gaps. The surplus is clearly more than sufficient to plug the remaining EUR36bn net gap. But, it might take longer than the next two years to re-direct surplus to where it is most needed.”