The evolution of corporate financing
Analysis by Clémentine Gallès, Head of Macro-Financial Studies
In the Eurozone, businesses* usually finance their debt through bank loans for the first two thirds of the amount and bond issues for the remaining third. It's the exact opposite in the United States, with two thirds of corporate debt financed through the markets.
The Eurozone’s financing model can as such be defined as “intermediated”, with banks playing a dominant role as financial intermediaries and so having the loan risk on their balance sheets. However, new constraints resulting from the financial crisis and the tightening of the banking sector's prudential regulations are reducing companies’ reliance on bank loans, resulting in a shift towards a “disintermediated” corporate financing model. Hence, since 2009 and across the Eurozone as a whole, direct market debt has increased by almost €500 billion, whilst outstanding bank loans to businesses have decreased by close to €300 billion.
However, this trend masks significant differences from one Eurozone country to another, and the situation in France is very different to that of its European neighbours. Firstly, bank loans have increased in France since 2009, while remaining stable or decreasing in the other main Eurozone economies. This resilience of bank credit has principally benefited small and medium-sized enterprises. Secondly, France also stands out with a stronger development of financing through the markets. Large corporations (notably CAC40 companies), which account for a large part of the French corporate sector, have thus tended to substitute bank lending by market debt. They have also made use of “private” placements, a direct financing alternative where debt is sold to targeted investors without going through the markets.
The fact that French enterprises have continued to call on external financing has offset the downturn in their self-financing capacity. This has helped their investment rates remain strong, unlike in some neighbouring countries where this rate has tumbled. The downside of this is that companies’ debt ratios have continued to increase, although they remain below the Eurozone average.
* In this article, by “businesses” we mean non-financial sector companies
Analysis published 05/08/2015, updated 04/05/2016