A phenomenal degree of capital markets funding upheld businesses in the first semester of 2020. As such, bond issuance has risen, with growth of social bonds solidifying Europe’s ESG administration. However, an undeveloped equities market implies SMEs keep on depending on loans from banks, limiting their chances to develop. Securitisation volumes kept on falling, impeding the banks’ ability to extend their loaning. Capital market unions required like never before to help long haul recuperation. European capital business markets provided gave record funding amounts to help businesses and economies this year. However, the absence of progress on the Capital Markets Union could stifle Europe’s economic recovery, as per a report published on October 28th by the Association of Financial Markets in Europe in a joint effort with 10 other international and European organisations.
The third edition of Capital Markets Union Key Performance Indicators report monitors how each individual member state has advanced on key measurements, such as for example access to funds, level of bank loaning, change towards sustainable finance and a strong fintech climate.
Adam Farkas, Chief Executive of AFME, said:
“Our report demonstrates that despite the economic shock from the Covid-19 pandemic, European capital markets were resilient in 2020 with unprecedented levels of bond market issuance including continuing leadership in sustainable bonds. However, a dramatic increase in bank loans means that Europe remains highly dependent on bank lending. Equally, while member states have taken steps to foster innovation in their economies, investment in fintech companies is still below that of other major regions such as the US and China. If Europe is to achieve a strong economic recovery and ensure that it is globally competitive, further progress needs to be made in this e and other areas to strengthen its capital markets.
More broadly, these findings highlight the necessity for urgent action to encourage deep and extensive European capital markets capable of meeting the needs of borrowers and savers and thereby, promoting long-term economic growth. This requires policy support for the means to re-equitise businesses and to improve the functioning of securitisation, among other areas of work. We are pleased to see the Commission taking action and urge policymakers to seize the opportunity to work towards a fully-fledged and globally-competitive Capital Markets Union.”
Crucial findings from the report illuminate that in the previous year, including the six months since the beginning of the Covid-19 pandemic, the EU has observed:
- Unparalleled levels of capital markets funding as well as funding from capital market instruments, prevalently fixed income protections, rose by 44% YoY. This has brought about an increase in the extent of market funds for EU businesses from 11% in 2019 to 14.5%.
- Securitisation stays repressed: covered bond issuance had risen to 82% YoY (primarily of held secured bonds) driven the huge increment in new loaning brought on by the Covid-19 pandemic and the continuous central bank support for this item. Securitisation volumes have dropped from year to year since the beginning of the STS system. Loan Portfolio sales have also been decreasing steadily since the peak volume of EUR 182.5 bn was noted in 2018 to EUR 28.7 bn during the first half of this year as banks keep on shedding NPLs from their accounting reports.
- Growth of social bonds strengthens Europe’s ESG leadership: throughout H1 2020, almost one third (27%) of sustainable bond issuance in Europe was determined as social, the biggest part of the sustainable market in any half year to date.
- SMEs keep on depending on bank loans: bank loaning to EU27 SMEs totalled EUR573 bn in H1 2020 contrasted and just EUR14.1 bn in risk capital investment (venture capital, private equity, business angel and equity crowdfunding).
- Record rise in personal savings: European family units have increased their reserve funds to record levels at 16% of their disposable income within the first quarter of 2020 (versus 12% in 2019). Be that as it may, the greater part of those reserve funds have been primarily invested into low-yield bank deposits.
- Progress made on fintech, however in actuality the EU continues to fall behind: seven European countries launched fintech development center points in the course of the last year. In any case, investment into EU27 fintech businesses during the first half of 2020 (EUR 1.5 bn) continues below that of other major regions such as the US (EUR 7.4 bn) and the UK (EUR 2.1 bn).
- European coordination stays tough: contrasted with the financial crises of 2008, in 2020 there have been no indications of a major decline of European integration. The corona crisis has not essentially disturbed the intra-European cross border funding flows, with businesses looking to raise finance within Europe to work through the pandemic. Bond issuance marketed within Europe rose to 96% in 2020 versus 93% in 2019 and 60% in 2007. Coordination with the remainder of the world somewhat crumbled in the first half of 2020.
Source: the Association for Financial Markets in Europe (AFME)
