The pandemic triggers non-bank financing of European companies

Listing panels on the Frankfurt Stock Exchange / Europa Press

The Association for Capital Markets in Europe (Afme) has published the third edition of the report in which it analyzes the progress being made towards achieving the objective of the European Commission to create a Union of Capital Markets (CMU) on the mainland.

In this year's work, the authors confirm that COVID-19 has, in general terms, slowed the progress of integration towards a real financial union in the EU.

However, there are some parameters that have improved after the outbreak of the pandemic.

One of them is the diversification of the sources of financing of the companies.

In the first half of 2020, European companies (including British ones) issued shares, bonds and other assets worth € 380 billion, according to data from Afme.

This amount represents an annualized growth of 44% compared to the previous year.

As bank loans grew only at a rate of 14%, there was a rebalancing in the sources of corporate financing in this period.

Thus, capital market instruments came to represent 14.5% of total financing, compared to 11% a year earlier.

In this growth, experts highlight the significant role that the European Central Bank has played.

Between March and May, the body chaired by Christine Lagarde 19.5% of the corporate bonds that were issued for a value of 39,000 million.

In contrast, in the case of European small and medium-sized enterprises (SMEs), the first half of the year reinforced the role of banks as the main source of financing.

Specifically, banking entities granted loans worth 573,000 million in this period, while the alternative of venture capital or Venture capital barely contributed 14,100 million.

Covid-19 has not caused a significant distortion in intra-European financing flows, that is, the issuance of a company in its country of origin has received investment flows without interruptions from other member countries.

In contrast, the Afme report does detect a "significant impact" on relations with other world markets.

Another aspect that Afme's work highlights is that the relative weight of green bonds, that is, those that are issued to finance projects related to environmental sustainability, fell during the semester, going from representing 5.6% in 2019 to 4.3% in 2020. This drop is due to the fact that the issuance of other types of bonds registered record figures between January and June.

The study establishes a ranking by countries based on seven parameters that measure the degree of development of local capital markets.

Spain, which is the fourth largest economy in the euro zone, is not, however, in the leading positions in this matter.

Specifically, the close of the first half is ranked 10 out of 28, improving from position 13 in 2019, but still below the ninth position it had in 2019. For example, in terms of the capital markets index, which measures the ease of companies to access sources of financing alternative to banking, Spain ranks 12th;

Our country is further behind (18th place) in creating a favorable ecosystem for fintechs.

It also has a long way to go (ranked 17) in everything related to making it easier for startups or SMEs to jump into the capital markets.