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ANNUAL REVIEW

Banking & Finance 2017

December 2017  |  BANKING & FINANCE

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Since the financial crisis broke, the global financial system has grown accustomed to increased regulatory oversight. Indeed, attempts to stabilise and better regulate the industry have continued at pace in recent years, with new rules governing capital requirements as well as financial products themselves. Financial institutions (FIs) have been required to achieve compliance with MIFID II and MIFIR, for example. The impending arrival of the EU’s General Data Protection Regulation will also present new challenges.

 

CANADA

Celia Rhea

Goodmans LLP

“2017 has been a strong year in the Canadian credit markets, with significant liquidity available to borrowers with good credit quality. The lion’s share – approximately 75 percent – of corporate lending in Canada is provided by the ‘Big Six’ Canadian banks, which still take a classic prudent lender approach to leverage levels and covenants. Without a Canadian secondary market similar to the highly liquid Term Loan B market in the US, the Canadian banks have not fully adopted sponsor/borrower friendly features of the US market, such as ‘covenant lite’ but they are responding to the competitive landscape with attractive pricing and more flexible terms.”

 

MEXICO

Robert W. Chandler

Sanchez Devanny

“Mexico has a deep, diversified local currency capital market and continues to be a prime emerging market target for global intermediaries and NFP Agencies. The country’s finance ministry and central bank are widely respected in the industry, as well as by their sovereign peers. The past several years have seen strong capital ratios, abundant liquidity, competitive pricing and normal collection activity. Financial groups have pursued asset growth via their multiple affiliates, including leasing, factoring, insurance and pension management, in addition to core bank activity, whose focus has been mostly consumer oriented.”

 

BRAZIL

Fabio Kupfermann Rodarte

Levy & Salomão Advogados

“Brazil’s economic turmoil intensified in the fourth quarter of 2014 and has persisted until the final quarter of 2017. The country’s recovery will be gradual and will depend on a number of political factors. As a result, low economic growth is expected in 2018. This situation is affecting banks’ willingness to lend to corporations, especially small and medium-sized enterprises, which tend to present a higher default risk. Accordingly, there has been a decline in the ratio of corporate loans. As per an October press release from the Central Bank of Brazil, the corporate credit portfolio has fallen 8.7 percent over the last 12 months.”

 

CHILE

Diego Peralta

Carey

“During the last year, banking and finance activity in Chile has been marked by three major factors – low GDP growth, low interest rates and a number of large investment projects. Various political reforms promoted by the government have caused an increase in uncertainty, which has discouraged investment. This uncertainty has affected banks, slowing down the sustained credit growth that existed until 2014. However, the expectations of a new government and the rising price of copper have had a positive effect, generating an increase in loans to corporates based on higher levels of confidence.”

 

UNITED KINGDOM

Charles Kerrigan

CMS

“In the UK and European markets, banks and clearers remain strong but there are a large number of other providers that benefitted from the lack of available funding during the financial crisis and have remained strong since. These include the lending arms of private equity houses, pension funds or insurance companies lending through fund lender vehicles and venture lenders. We are increasingly seeing these lenders providing not just mezzanine debt but also senior debt and hybrid loans. Their risk appetite is higher and they will lend where traditional banks might not and offer more structured products focusing on assets.”

 

SPAIN

Joaquín Sales

King & Wood Mallesons

“Though the Spanish economy has accelerated in recent years, our economy is still experiencing periods of malaise. In particular, in the second half of 2017 the economy has lost the intense pace that it had gained after the global financial crisis. This slowdown has had an impact on the demand for lending products, especially in relation to long-term loans. However, in recent months, the demand for financing from SMEs has slightly increased due to the general decrease in interest rates. Uncertainty about the situation in Catalonia has also had an impact on lending appetite and cost.”

 

PORTUGAL

João Espanha

Espanha E Associados

“Historically, the Portuguese banking sector has never been very strong. Nevertheless, after the privatisation of the sector in the 1980s, Portuguese banks became known for their swift adaptation to modern techniques, quickly reaching a high degree of sophistication. Following a number of mergers in the 1990s and the acquisition of some banks by foreign companies, the financial crisis hit Portuguese banks hard. Highly leveraged and exposed to real estate non-performing loans (NPLs), many banks had to rely on state aid. Even the state bank was recently required to increase its share capital after authorisation by European institutions.”

 

GERMANY

Wolfram Distler

Weil, Gotshal & Manges LLP

“Several factors have contributed to high levels of activity in the German banking and finance market in 2017. The eurozone’s biggest economy has grown steadily in the last 12 months at a high rate, boosting private consumption and contributing to an ongoing investment upswing. Eurozone interest rates have remained at record lows, the European Central Bank has continued its liquidity measures and the market has seen unprecedented competition among banks, non-bank lenders and capital markets. As a consequence, banks are indeed demonstrating a strong appetite to lend, and so are alternative credit providers.”

 

SWEDEN

Lisa Antman

Wigge & Partners

“Swedish banks still have a strong appetite for financing companies, even though many Swedish banks are more selective about which companies they choose to finance. Weaker borrowers have less chance of getting a traditional bank loan. While the demand for loan financing among SMEs has continued to increase moderately, willingness to finance such companies has somewhat stagnated among banks. In general, banks have begun to hold a more restrictive approach when financing SMEs.”

 

ITALY

Marisella la Forgia

Macchi di Cellere Gangemi

“After the heavy economic crisis and the consequent credit crunch, from 2015 onwards banks have gradually started to lend money again. Some sectors, such as manufacturing and services, have experienced a higher increase in lending activity than others, such as real estate. Even in a situation where banks’ capital ratios are still heavily burdened by non-performing loans (NPL), mainly of larger corporates, banks have been more likely to finance large corporates, including distressed ones, rather than small and medium-sized enterprises (SMEs) and microenterprises which have experienced a downturn in obtaining credit from banks.”

 

INDIA

Ajay Shaw

DSK Legal

“The central bank of India, the Reserve Bank of India (RBI), requires regular monitoring of capital, asset quality, profitability and gross non performing asset (NPA) levels, by banks and financial institutions, in order to take prompt corrective action for the resolution of stressed assets, including proper asset classification and income provisioning. Banks and financial institutions, especially public sector banks and state-owned lending enterprises, have been saddled with stressed assets and they are witnessing huge dents in their books on account of provisioning required to be made for stressed assets. This has had a dampening effect on their lending appetite.”

 

SINGAPORE

Gerard Ng

RHTLaw Taylor Wessing LLP

“Bank lending activity in Singapore has been rather lacklustre this year. Credit demand has been low as a result of weak economic growth. Additionally, non-performing loan ratios have risen due to emerging asset quality risks in the marine, oil and gas sectors. It is therefore unsurprising that Singapore banks have scaled back on lending, as they focus on driving revenue and cost containment to offset more provisions that need to be set aside against the backdrop of worsening asset quality. Recently, a commodity trader raised financing through the sale of asset-backed bonds to banks issued by a Singapore special purpose vehicle (SPV).”


CONTRIBUTORS

Carey

CMS

DSK Legal

Espanha E Associados

Goodmans LLP

King & Wood Mallesons

Levy & Salomão Advogados

Macchi di Cellere Gangemi

RHTLaw Taylor Wessing LLP

Sanchez Devanny

Weil, Gotshal & Manges LLP

Wigge & Partners


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