The life of a local financier is definitely not a long calm river. After a few quiet years in the shadow of very low and fixed rate loans, the latest observatory from local debt management firm Finance Active released today shows that 2022 marks the beginning of a new, more bullish era: “The extended window negative or zero interest rates on long maturities are now closed “warns Caroline de Marqueissac, head of the company’s consulting – public sector activities. The average rate of new loans has in fact stopped falling after six consecutive years of decline and dropped to 0.62% after last year’s record low of 0.56%.
However, this is far from the 1.18% average observed since 2014. The Observatory, which relies on a panel favorable to large accounts and represents almost half of the volume of loans observed in 2021 (11, 6 billion in new financing in 2021, which is expected to approach the record of 22.9 billion euros borrowed in 2020) indicates that all layers of local authorities have been financed below 0.80% for a financing requirement external growth of 15% despite confinements and municipal elections extended over two fiscal years.
Regions get the best performing rate at 0.45%, followed by departments at 0.56%. Municipalities and EPICs with fewer than 50,000 inhabitants recorded the highest average rates, ranging between 0.73% and 0.70%. This recourse to debt increases the local public debt by + 2.8%, but much less than the total public debt (+ 7%). Therefore, the share of local public administrations in the overall debt remains modest at 8.3%, part of which feeds Treasury deposits “rapidly increasing on the departmental and regional side” according to INSEE. The unexpected effect of low interest rates and the effect of the electoral cycle have also prompted local authorities to borrow excessively and further increase their Treasury deposits.
Variable rates are coming back out the window
Local authorities in the Finance Active panel continue to favor the fixed rate in 2021 but are now turning more to floating rate loans. They still represent 83% of the flow recorded last year against 89.1% in 2020, but variable loans increased by 17% in 2021 against 11% two years ago. The market was less favorable, especially from the second part of the year at a fixed rate: the average of a 15-year fixed rate, amortizable and progressive, stood at 0.11%, against -0.05% in 2020. At the at the same time, the average margin on the Euribor is more efficient according to Finance Active at 32 basis points, compared to 54 in 2020: “72.5% of variable loans (in volume) were subscribed with a margin of less than 0.45 %, compared to 57.8% last year. In addition, 32% of variable loans have a margin of less than or equal to 0.15% (on an index that often stops at 0.00%) ”details Caroline de Marqueissac.
Banks shunned by large borrowers
The buoyant market is not fully benefiting banks who see their share of the need for long-term loans (1) reduce to 47.8% of the total: “This is the third consecutive year of decline after the peak of 2018 at 69.4%”, notes the head of the public sector.
Like last year, it is the bond market that benefits from this decline with 37.3% of volumes subscribed against already 31.4% in 2020 and 17.9% in 2019. But this increase is mainly due to the composition of the Finance Active panel, which favors large accounts, in particular trade unions and regions, which are financed through bonds for 60.2% and 65.1% respectively. Behind the record of € 5.5 billion raised by local authorities in 2021 through bond issues, there is a low number of 25 issuers and a stable number of 146 issues. Furthermore, the mobility of Ile-de-France, the city of Paris and the Ile-de-France region alone account for more than 50% of the volumes issued.
Banks therefore remain the privileged players of small and medium-sized communities. Thus 100% of the new loans for SDIS, 93% for municipalities and EPCI from 10,000 to 20,000 inhabitants and 91.8% for the smaller municipalities of the municipal block included in the Finance Active panel are made by private banks.
The Caisses d’Epargne and the AFL make a breakthrough
These providers, however, recorded contrasting performances compared to 2020. SFIL / Banque Postale, leader for 7 years in terms of the volume of bank loans disbursed, recorded for the 3rd consecutive year the market share which rose from 40.5% of share market in 2020 to 33.6% in 2021 but above all almost 12 points less than in 2019. This decline is in favor of the Caisses d’Epargne-groupe BPCE, which increased by more than 10 points in a year from 17.2% of the equity market to 27.6% of the volume of total bank loans disbursed in 2021, of which 19.1% for the Caisses d’Epargne alone (compared to 10.7% in 2020): “This better performance reflects a more aggressive on the part of the Caisses d’Epargne share with an average rate of 0.63% against 0.70% of its main competitor La Banque Postale “analyzes Caroline de Marqueissac. The latter remains the leader in terms of number of contracts: 37.9% of contracts signed in 2021, but for an average amount down by 1.7 million million euros compared to 2020 (4.3 against 6 million euros) when the Caisses d’Epargne generated 14.2%, but for an average amount of 6.6 million euros.
The performance of the BPCE group is also at the expense of the runner-up in the previous year, Société Générale, which had achieved a market share of 12.6% in 2020, but dropped to 6th place in 2021 with 7.5% . Crédit Agricole is also taking the hit with a 7.4 point drop in market share between 2020 and 2021 in loan volume, but remains in second place in terms of number of loans (17.2%) for an average € 2.4 million lower than the panel of loans.
Although public banks have also suffered from the attraction of large bond borrowers, the AFL has taken a step forward and confirms that it has found its place in the market. By opening up to the unions, from which it captured 2.4% of the loans in 2021, it now carves out a market share of 6.2% compared to 3.2% in 2020 “It is more present among the loans of large borrowers, for example for example 10.5% in municipalities and EPCI with more than 100,000 inhabitants, or even 8.1% in departments ”, notes Finance Active. On the other hand, the EIB and the Caisse des dépôts (CDC) are increasingly struggling to stay in the game, having reached a peak in 2015 for the EIB with 22% of the amounts borrowed and in 2016 for the CDC with 13%, 9% of total financing, in 2021 will rise to a market share of 3.8% and 3.4% respectively. Caroline de Marqueissac.
A declining average duration
Local authorities have borrowed on average over 18.2 years in 2021 compared to 20.1 years in 2020. This shortening is mainly due to the increase in power in the bond panel, often set to shorter maturities (on average 16.8 years with Finance Active customers) with respect to the banking market. But one in five communities does not hesitate to get into debt beyond the age of twenty, without automatically turning to the Caisse des dépôts, but to the Banque Postale or the Caisses d’Epargne, or even to a lesser extent to the AFL.
A stable title
Even though 10-year rates have returned to positive territory, financing conditions remain largely favorable to local authorities. The average rate of local debt valued at over 230 billion euros continues to drop to 1.72% last year against 1.89% in 2020.
The trade unions are the first to benefit from these good conditions with an average rate of 1.39%, followed by the Regions at 1.46% and the departments (1.74%). But municipalities and EPCIs with fewer than 10,000 inhabitants are in the high-end at 2.37%, “which is 98 basis points above the average union rate,” Finance Active deplores. Note that the duration of the local debt remains unchanged at 14.2 years.
“Borrowers want volume, flexibility, performance and meaning”
Caroline de Marqueissac, Head of Consulting – Public Sector at Finance Active
“The average cost of debt is falling and borrowers continue to benefit widely, in a context of still abundant liquidity and high coverage of their financing needs. The banking offer is changing to adapt to the new environmental and social concerns of local authorities. Between project financing, green loans and impact loans, each banking group offers its own range of products to enhance the project or the borrower. The interest rate of a contract, initially fixed or variable, may vary depending on whether or not extra-financial criteria are met, giving the debt a different purpose from that of just financing investments. This restructuring of the offer, based on the promotion of territorial projects and on the extra-financial quality of borrowers, is gradual and the contracts signed are still limited. The profile of borrowers is changing: they want volume, flexibility, performance and meaning at the same time. Since it is impossible for lenders to tick all the boxes, borrowers are therefore increasingly favoring the diversification strategy to leave the doors open to all opportunities. But they would have to wait until the end of this year’s presidential elections before having their first consultation or doing so from April with all the current uncertainties due to the international context and commodity tensions. Since the beginning of the year, the rates are now above 1%. “
including new contracts, signed and consolidated in 2021, but also consolidations of contracts signed in the past or multi-year agreements Back to the text