Lending diversity reduces global debt funding gap by 17%: DTZ

The global net debt funding gap has shrunk by 17% to $117 bn (EUR 92 bn) over the past six months, but Europe remains the most exposed with a net gap of $86 bn, according to a new report issued by DTZ. However, the European figure is 20% below DTZ's previous May 2012 estimate of $107 bn for the old continent alone.

A weaker economic outlook and growing pressure from regulators on banks to step up their deleveraging efforts have caused Europe's gross debt funding gap to almost double to $190 bn as banks struggle to refinance the legacy debt burden. The UK, Spain and Ireland have large absolute and high relative gross funding gaps. But, France, Germany and the Netherlands are significantly impacted by these pending regulatory pressures.

'The growing diversity of lending channels across Europe is helping to shrink the gross debt funding gap. This reflects the emergence of a growing number of non-bank lending channels including insurance companies, debt funds and corporate bond issuance,' said Nigel Almond, head of strategy research at DTZ and author of the report. 'We estimate there to be $75 bn of new finance available from both insurance companies and new senior debt funds over the period 2012-13.'

The sector has also seen growth in new bond issuance, with a net $29 bn available in the same period. This $104 bn in new lending capacity has helped reduce Europe's $190 bn gross debt funding gap to a net gap of $86 bn. 'Across Europe, the UK is set to benefit most from the growth in alternative funding sources in the short term. Whilst its gross debt funding gap has risen marginally, the UK has seen a near doubling in non-bank debt funding,' added Nigel Almond.

Lending from insurers and debt funds is set to grow to nearly £13 bn over 2012-13 with a further net £4.5 bn in corporate bond issuance. This narrows the UKs funding gap to a net £6 bn, more than 50% lower than DTZ's previous estimate.

Hans Vrensen, global head of research at DTZ, commented: 'Looking forward we see non-bank finance taking an increasing share of the market. We estimate there to be $225 bn in non-bank finance available across Europe over the period 2013-15. This represents more than 20% of the legacy loans due for refinancing over this period. Whilst in the near term we see insurers as being more active with a two-third market share, we see increasing activity from debt funds and corporate bond issuance leading to a more even distribution in commercial mortgage debt sourcing by 2015.'