Economy.- Banks diverted 78% of loans to large companies to SMEs after the ECB bond program

Spanish bond issuers, mostly large companies, reduced their demand for bank credit for funds obtained from the corporate bond purchase program promoted by the European Central Bank (ECB) in March 2016, which made the institutions The majority of their credit offer was shifted to smaller companies, which were able to “significantly” increase their level of real investment.

Image result for ecb MADRID, 18 (EUROPA PRESS)

Spanish bond issuers, mostly large companies, reduced their demand for bank credit for funds obtained from the corporate bond purchase program promoted by the European Central Bank (ECB) in March 2016, which made the institutions The majority of their credit offer was shifted to smaller companies, which were able to “significantly” increase their level of real investment.

This is clear from an analytical article prepared and published this Thursday by the Bank of Spain on the effects of the program of purchase of corporate bonds of the Eurosystem on Spanish companies, which shows that the offer of total credit to all non-issuing companies increased in 3,450 million euros in the three months after the announcement of the program.

This amount represents 78% of the total credit decrease suffered by banks due to the substitution of loans by debt by the issuing groups.

By size of the company receiving the credit, on average, for each euro that decreased the credit destined to a company that had issued bonds after the announcement of the CSPP, 48 cents were redirected towards credits granted to large companies, 15 cents to companies of size medium and another 15 to small and micro enterprises.

The new credit funds redirected to the three previous groups of companies represent an increase of 3.3%, 1.8% and 0.8%, respectively.

PURCHASE PROGRAM: 7,000 MILLION PER MONTH

In March 2016, the European Central Bank announced the extension of the asset purchase program (APP) to the highly rated credit bonds issued by non-financial corporations in the euro area.

After the announcement of this new program (CSPP, for its acronym in English), there was a “significant drop” in the interest rates of those bonds issued by Spanish companies eligible for purchase by the Eurosystem, and was extended to other securities with a worse credit rating, through the usual process of recomposing investment portfolios. At the same time, there was a “significant increase” in the new issues of bonds and obligations.

In this way, the funds obtained in this way led the Spanish bond issuers, which are usually large companies, to reduce their demand for bank credit, while the credit institutions responded by shifting their credit offer to other companies that They do not have the same facility for issuing bonds and they are usually smaller in size.

Thus, of every euro of reduction of the outstanding credit balance of large companies with Spanish credit institutions, some 78 cents were redirected to other non-issuing companies, including SMEs.

Purchases within the CSPP in the EU as a whole have meant, on average, about 7,000 million euros per month, which represents around 10% of acquisitions of the asset purchase program since June 2016, date on which the that purchases began, to reach a total of 132,000 million euros at the end of 2017, with a relatively homogeneous distribution by sectors of economic activity.

The bonds of Spanish companies represented 11% of all purchases of the CSPP. In turn, of the total of 1,071 issues partially acquired under the CSPP, 100 of them have been issued by 17 Spanish companies.

GREATER ISSUE OF BONDS

The analysis shows that the favorable conditions of the fixed-income market encouraged companies to carry out new bond issues, since 33 companies carried out new issuance transactions in the six-month period following the announcement of the debt purchase program; that eleven went to the market for the first time.

“The companies that increased their volume of fixed income instruments used the funds obtained through these issues, at least in part, to reduce their volume of bank loans,” explains the agency.

In detail, for each percentage point that increased its balance of bonds issued between February and June 2016, the issuing companies reduced their bank credit by 0.44%.

In addition, from the announcement of the purchase program in March to mid-April 2016, the profitability of the eligible bonds issued by Spanish non-financial corporations decreased by 44 basis points (bp), which represents a notable decrease, since it represents 30 % of the average level of the returns of these assets during said period.

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