According to figures from the Banque de France, loans to businesses rose by more than 11% year-on-year. This increase raises the question of French corporate indebtedness and its consequences.
Particularly strong credit growth for SMEs
Banque de France statistics show that loans to French companies rose by 11.3% year-on-year, reaching a total outstanding of 1,154.1 billion euros at the end of June. In May, growth stood at 10.8%, compared with 8.2% in April. This growth was mainly driven by the sectors most affected by the health crisis: accommodation and catering, consulting and business services, construction, transport and warehousing. By company size, credit increased by 15.4% for SMEs, 9.7% for mid-sized companies (between 250 and 5,000 employees), and 6.4% for large companies.
Reduced investment capacity
The financial situation of French companies gives cause for concern. The government's stated aim is to ensure recovery and help the most fragile companies to maintain their activity over the coming months without going bankrupt. The PGE scheme (state-guaranteed loans) set up to support players hit by the Covid-19 crisis is an undeniable success. However, not all companies will be able to repay their loans.
During the period of confinement, many companies favored cash loans offering attractive terms thanks to the possibility of recourse to the EMP, and postponed or cancelled their capital expenditure. Among SMEs, 42% applied for cash credit during the 2nd quarter, compared with 17% between January and March. Over the same period, 28% of VSEs and 40% of mid-sized companies also took this step.
A decisive year-end
In July, the two types of credit rebalanced. In fact, investment loans increased by 4.8 billion euros, while cash flow loan take-up slowed (+8.6 billion euros in July, compared with +10.5 billion euros in June). It remains to be seen whether the end of the year will confirm this trend. Companies with an EMP will now be able to define their repayment terms. For those opting for repayment over 5 years, the loan will no longer be considered a cash credit, but an investment loan.
In the meantime, the Haut Conseil de Stabilité Financière (High Council for Financial Stability), led by Bercy and the Banque de France, remains vigilant and has decided to extend until June 2021 the threshold limiting banks' exposure to the most heavily indebted French companies to 5% of shareholders' equity.