The rise in French corporate debt linked to the health crisis has banks worried. To relieve their balance sheets, several banks are proposing to redistribute part of their state-guaranteed loans in the form of debt securities on the markets.
100 billion euros of PGE granted to French companies
Nearly 100 billion euros in state-guaranteed loans (out of a total of 300 billion euros) have been granted to French companies, according to figures from the French Ministry of the Economy and Finance. French cable giant Nexans is among the latest companies to benefit from this scheme, with the signing of a 280 million euro EMP. The manufacturer joins a dozen other major companies, including Renault and Air France.
Mutualist groups are the biggest providers of EMPs, with a combined market share of over 70%. More precisely, BPCE accounts for around 25.8% of the amounts granted (22.5 billion euros), followed by Crédit Agricole (20.5 billion euros), Crédit Mutuel (18.9 billion euros), Société Générale (12.2 billion euros) and BNP Paribas (11.4 billion euros), according to data reported by the institutions. These amounts are likely to increase as the applications under review are processed. Indeed, the refusal rate for EMP applications remains very low, at 2.5%.
Banks want to lighten their balance sheets
In its latest quarterly report, the Banque de France warns of the risk of pressure on banks' balance sheets as corporate debt rises. The risk of the latter going bankrupt could, in turn, "increase banks' bad debts", warns the institution. Faced with the sheer volume of loans being granted, lenders are wondering how they can transfer some of the risk of non-repayment to the markets.
Although, in theory, loans guaranteed up to 70-90% by the State cost them virtually nothing in terms of equity, some banks are anticipating an explosion in business failures and non-payments, and would like to redistribute some of this capital in the form of debt securities. The public authorities, however, have reservations about this practice. The Ministry states that, to date, no PGE securitization projects are under consideration. Similarly, the "bad bank " option is not being considered.
The question of state guarantees also arises in the context of securitization. The texts are clear on the subject: " The State guarantee is granted to the credit institutions or finance companies that grant the loans. It cannot be extended to other players ". Another obstacle facing banks is the depth of this market, which is still small.