Lending surplus sufficient to plug European funding gap - DTZ

Increased competition in Europe’s core lending markets is leading to a funding surplus which should be ‘more than sufficient’ to plug Europe’s net debt funding gap, according to DTZ’s latest findings.

With many lenders focussing on specific markets, a surplus capacity is emerging in some markets, notably the UK, France and Germany, DTZ says in its latest Debt Funding Gap report. This will be more than sufficient to plug the remaining €36 bn net gap for the next two years, the firm concludes.

Europe’s net funding gap has fallen by 8% over the past year to €36 bn for the 2014-15 period, according to the report. Growth in alternative sources of property finance has helped to offset the increase in Europe’s gross funding gap, resulting in the 8% reduction in the net gap.

On the refinancing side, an improved outlook for capital values, more aggressive LTVs and an increase in the volume of writedowns over the past year have helped to reduce Europe’s refinancing gap by 33% over the past year to €51 bn over 2014-15. The biggest gaps remain in the UK and Spain. However, both have narrowed - by 18% to €15 bn in the UK and by 25% to €13 bn in Spain.

At the same time, the impact of new regulations for banks and insurers has increased, more than offsetting the reduction in the refinancing gap, DTZ found. The regulatory impact has increased by 50% to €73 bn, causing Europe’s gross debt funding gap to rise to €124 bn, nearly 2% higher than a year ago.

Hans Vrensen, global head of research at DTZ and co-author of the report, commented: ‘Based on our country-level analysis, we identify surplus lending capacity of €45 bn in the core European markets of the UK, France and Germany. In the past, we assumed that if a surplus was not used in a particular country, it would be lost. However, with the increased competition in the core lending markets and the re-emergence of investment banks, we now expect this surplus will be redirected to markets with remaining gaps. The surplus is clearly more than sufficient to plug the remaining €36 bn net gap. But, it might take longer than the next two years to re-direct surplus to where it is most needed.’