The large companies that came en masse to finance themselves on the bond market at the end of the Covid crisis have had their noses gouged. The price to pay for issuing debt on the markets began to rise in the middle of last year: by July 2021 it had fallen to 0.43% for French non-financial corporations, according to the Banque de France. Then the movement accelerated as central banks around the world raised their voices in the face of inflation. So much so that, since last January (bank and bond financing was then granted on average at 1.1%), it has become more expensive for French companies to borrow on the market than to banks. A very unusual configuration. In 10 years, this had only been happening for four months, at the height of the Covid crisis.
And the phenomenon continued to grow. Data recently released by the Banque de France show that bank loans cost French non-financial companies an average of 1.37% in May, compared with 2.73% of market loans in euros. As banks weathered the rise in market rates with some inertia, the gap widened further in June, between bank loans at 1.65% and bond loans, up by almost 1 percentage point to 3.69. %. In less than six months, the gap widened by 2 percentage points.
Under these conditions, it is not surprising that companies prefer bank credit. It represents about 65% of their financing, compared to 35% of the markets, but this average hides considerable disparities. For larger companies, especially listed ones, bond financing prevails. Conversely, SMEs and most ETIs do not have market access.
Companies received the message five out of five. Their outstanding bank loans increased 6.5% yoy in June (up from 5.9% the previous month), returning to the cruising speed observed before the health crisis. The increase is all the more notable as it comes after the periods of imprisonment and the loads of loans that have come to support businesses. And even though, at the end of June, market funding was up by just 0.7 % in a year, clearly, the tightening of the ECB’s monetary policy is still not enough to curb corporate lending in France. Overall, in June it progressed at an annual rate of 4.4% (after + 4.2% in May).
The movement is particularly marked on the part of large companies (in a statistical sense, at least 5,000 employees and 1.5 billion euros in turnover), ready to arbitrate between the various sources of financing. Their so-called “mobilized” credits (ie actually withdrawn on a line made available to them) increased by 5.3 % at the end of June. The ETIs, on the other hand, saw their bank loans grow to a lesser extent (+ 1.7% at the end of June). For SMEs, bank credit remains dynamic at + 4.8%.
The best of both worlds
Banks are benefiting from the best of both worlds: on the one hand, their average rates have risen, promising them more generous interest income in the coming quarters. The increase in interest rates is easier to pass on to businesses than to individuals, because the usury rate (maximum rate authorized for loans) is not provided (as for households) for businesses that carry out an industrial activity in particular and commercial.
But at the same time they can afford rates far lower than those of the markets: thanks to customer deposits – still very generous, equivalent to free resources – or to the sums borrowed from the ECB at advantageous conditions (TLTRO), they are still in able to lend cheap.
Unlike the real estate market – where banks are still slow to reap the rewards of the eurozone’s new monetary policy – business lending is full of lessons about this new interest rate climate and how it could benefit business. lending of institutions.
The residual debt of non-financial companies is close to 2,000 billion euros (exactly 1,987 billion), according to the most recent data from the Banque de France.