ANNUAL REVIEW

Banking & Finance 2015

December 2015  |  BANKING & FINANCE

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The financial crisis, which shook banking and financial markets to their core, is now a thing of the past. Yet across many jurisdictions, 2015 was still a mixed year for the banking and finance space.

Volatility has been felt across a number of important markets over the last 12 months. In the US, leveraged lending and high-yield issuance declined, whereas investment grade volume, mainly with regard to acquisition finance, was up. Measures such as the US Leveraged Lending Guidelines have had an impact on borrowing. The guidelines follow other major regulatory developments in recent years, including Basel III, with its additional capital controls and requirements, and Dodd-Frank, which continues to pose new challenges to firms operating in the banking and finance space across Europe and the US.

 

UNITED STATES

Lauren Hanrahan

Milbank, Tweed, Hadley & McCloy

“Banking and finance activity in the US in 2015 has been more volatile than in the prior year. By most accounts, leveraged lending and high-yield issuance in the US was down throughout 2015. Investment grade volume – particularly with regard to finance acquisitions – was up.”

 

UNITED KINGDOM

Neil Caddy

Milbank, Tweed, Hadley & McCloy

“Banking and finance activity in the UK has been somewhat mixed this year. Earlier in the year the demand for paper from investors was extremely high. This meant that arrangers had little trouble in syndicating and indeed many larger deals undertook re-pricing transactions post closing. More recently, however, the buy-side seems to be much more selective as to which deals to invest in, meaning that re-pricing activity has dried up. This has also led to spreads widening when compared to earlier in the year and deal volumes have shrunk as compared to this time last year. That said, for the right credits, banks have in general been demonstrating that they are still very keen to lend to corporates.”

 

IRELAND

John-Hugh Colleran

Dillon Eustace Solicitors

“Banks and financial institutions in the Irish market have continued to deleverage their balance sheets on a large scale by way of loan sales to international investors. However, after much loan sale activity by almost all of the traditional players in the market over the past two to three years, the end of this phase is now in sight. The National Asset Management Agency (NAMA), which initially assisted in deleveraging the five participating Irish financial institutions, is now well advanced in disposing of its acquired loan book and was the most active Irish seller so far in 2015. It is anticipated that NAMA will dispose of the bulk of its remaining assets during 2016. It has been evident during the year to date that the focus of the remaining traditional banks is now shifting from deleveraging and workout of their challenged loan books and they are increasingly willing to lend new monies, albeit still subject to relatively strict credit approvals.”

 

NETHERLANDS

Ferdinand Veenman

KPMG Advisory N.V.

“Compared to 2011 and based on 2014 year-end figures, the banking sector as a whole has shrunk by 11 percent. This has mostly been achieved by sales of non-core assets and has helped banks to comply with new regulatory capital requirements. In that same period, as a result of the bad economic situation, the demand for credit was very subdued. In 2015, on the back of an improving economy, we have seen an increase in demand for credit – both for retail and business clients. Retail lending, mostly residential mortgage lending, has re-priced to very healthy levels and we have also seen in increase in corporate lending margins, albeit more benign. We also observe that banks prefer lending to larger SMEs and corporate clients. We think the reason for this is that banks are increasingly looking to improve their financial performance and that this focus is part of that.”

 

LUXEMBOURG

Alexandrine Armstrong-Cerfontaine

King & Wood Mallesons

“Banking activity in Luxembourg has a broad meaning. It includes retail services, funds administration, fiduciary and trustees services, financial engineering, as well as corporate finance services – with loans, structured products and capital markets issuances. Almost all of the 105 banks based in Luxembourg offer each of these services. Luxembourg corporates rely on banks to finance their activities and lending from Luxembourg banks continues to increase, as has been the case since the financial crisis in contrast to many European jurisdictions. It is well known that Luxembourg banks have been remarkably resilient and are a stable source of funding for corporates and foreign, mostly European, banks. Luxembourg banks are also present in cross-border financings and refinancings for corporates where the trends are equivalent to other European jurisdictions.”

 

SWITZERLAND

Jürg Frick

Deloitte AG

“Banking and finance activity in Switzerland was recently influenced by a rather difficult economic, financial and regulatory environment. Negative interest rates introduced by the Swiss National Bank, negotiations with the US DoJ to solve tax issues and declining revenues combined with an unfavourable operating model absorbed our banking system. Risk considerations led to new capital allocations and subsequently to lower balance sheets. Although the appetite to lend to corporates remains and the availability of credit facilities, as shown in our CFO survey, is still high, margins began to rise and quality of assets became more important. Credit conditions – availability as well as costs – have been consistently rated as attractive over the last few years and they continue to be a strong advantage for Swiss companies.”

 

SPAIN

Joaquín Sales

King & Wood Mallesons

“As in other European economies during the financial crisis, most Spanish companies have been forced to reduce production, which has in turn reduced their capital needs and subsequently their leverage levels, which otherwise would have been borrowed from banks. This has had an impact on lending levels in Spain, which have significantly declined. Spanish corporates have emerged from the crisis with a more international form and most of their new investments and financing needs are now located abroad. Fortunately, finance and banking activities in Spain are showing a positive balance compared to the same period in preceding years, which experts attribute to the overall growth shown by the main European economies, among which Spain is experiencing strong growth.”

 

GERMANY

Werner Meier

King & Spalding LLP

“As elsewhere in Europe, limitations on bank’s regulatory capital that were introduced after the financial crisis have caused banks in Germany to deleverage their capital. Also, concerns about emerging markets – including the Chinese economy in particular, the Greek debt crisis, and most recently the developments at Volkswagen and other corporates – have played a negative role. However, so far this has not had a substantial adverse impact on Germany’s loan markets. There is abundant liquidity, and corporate borrowers have a wide variety of financing options available. This applies not only to investment grade or other large borrowers but also to mid-size companies. Increased M&A activity in Germany has resulted not only in an increase in the volume of acquisition financing, but also in a more competitive and more liquid market.”

 

CHINA

Simon Gleave

KPMG ASPAC

“Despite the slower growth rate in the economy – a rate of around 7 percent – asset growth in China continues at around 10 percent. Loan growth, however, is slightly lower, at around 8 percent. Non-performing loans (NPLs) ratios have seen increases over the past year, averaging about 1.4 percent for the sector. Impaired loans disposals to asset management companies have, however, been high, reducing the increase in the NPL ratio.”

 

SOUTH AFRICA

Sipho Malaba

KPMG Inc South Africa

“In 2015, South African banks published increased headline earnings, despite having been faced with challenging operating conditions. Their strong performance is attributable to different operating and growth strategies implemented by the various banks. Sustained effort by all the banks to optimise channel choices and migrate customers to digital and mobile channels continues to positively impact electronic transactional volumes. The loans and advances books continued to grow in 2015, indicating that there still is an appetite to lend. Corporate lending has outstripped retail and personal lending. The slower increase in retail and personal lending is facilitated by the implementation of the Regulations for Affordability Assessment, as part of regulatory revisions related to the National Credit Act from March 2015.”

 

UNITED ARAB EMIRATES

Luke Ellyard

KPMG Lower Gulf Limited

“Generally, banks are always keen to lend to corporates – in the UAE as much as anywhere else. Following the global financial crisis across the MENA region, there was a general move away from unsecured ‘name’ lending and a tighter focus on quality of security or cash flow provided. This has been enhanced by the expected slowdown and liquidity tightening due to the prolonged oil price slump. Even large family groups, which traditionally have not needed to share much corporate information, are being more transparent about their balance sheets and are providing better collateral. We are also seeing a tendency – again perhaps overdue – of more professional relationship managers who are becoming more attuned to risk, and therefore opportunity, in their markets, industries and sectors.”


CONTRIBUTORS

Deloitte AG

Dillon Eustace Solicitors

King & Spalding LLP

King & Wood Mallesons

KPMG Advisory N.V.

KPMG ASPAC

KPMG Inc South Africa

KPMG Lower Gulf Limited

Milbank, Tweed, Hadley & McCloy


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