Alternative finance has begun to establish itself as an increasingly powerful form of corporate funding in Europe’s largest economies.
Overall, corporates indicated that 33% of their funding was sourced from alternative providers in 2016, rebounding slightly from 30% in 2015, taking market share away from capital markets, which fell slightly, to 19% from 22%. Bank lending remained flat in 2016, having increased slightly the previous year. Around half of all companies – both medium and large – said they expected their use of alternative finance to increase over the next five years, which has been a consistent prediction over the past three years.
A key question is how fast alternative finance would have grown over the past year without the European Central Bank’s EUR1.9 trillion asset-purchase programme, which was extended in June 2016 to include corporate bonds. Experts say this support mechanism has bolstered bank liquidity – ensuring that a large share of corporates look first to mainstream lenders rather than investors for fresh capital. However the programme, set to end in March 2017, has not helped banks everywhere. In Spain, bank lending halved in 2016 as alternative lending soared, pointing to the ongoing challenges facing the banking sector in Spain.
Larger corporates showed a greater willingness to tap into new forms of capital in 2016, with 34% raising capital via alternative financing, against 26% the previous year, reducing their reliance on bank lending, down to 41% from 48%. That suggests a) a rising level of comfort with alternative finance among large firms, and b) the existence of growing pools of alternative liquidity. Mid-sized corporates showed a slight decrease in their use of alternative financing, inching down to 33% from 35%. Mid-sized firms also showed less desire to tap capital markets in search of funding, down to just 12% of their funding mix in 2015, less than half the 25% share that capital markets represented for larger companies.