We believe the shortfall in the supply of bank credit to European SMEs will last for another five years.
We also believe European firms will struggle to fill this gap using other existing sources of credit. Europe’s medium-sized enterprises do not typically enjoy the same sort of access to bond markets as their counterparts in the US. European bond issuance has strengthened during 2012 and 2013, but total bank loans still comprise the large majority of European corporate debt, compared with less than 30% in the US.
Europe’s securitisation markets, which could help banks lend to smaller firms with limited credit histories, are also recovering slowly in the post-crisis regulatory environment. European SME securitisation only raised a total of €45bn in 2012 and just €16bn during the first three quarters of 2013. Meanwhile retail bonds are currently barely known outside Germany and Italy, and peerto- peer lending and crowd-funding platforms are still gaining traction in most European markets. We see a major opportunity for non-bank institutions to extend credit to mediumsized European firms.
We believe this segment offers the greatest scope for growth in non-bank lending and would expect a typical loan to fall somewhere between €10m and €50m. Below that band, loans will be too small to interest non-bank institutions; above it, companies will typically have their own credit rating and easier access to other sources of credit.