(The following statement was released by the rating agency)
Sept 13 - Corporate financing in the Nordic countries is undergoing a structural shift as corporate borrowers turn increasingly to the capital markets for funding in preference to traditional bank lending, according to a new report published by Standard & Poor’s Ratings Services.
The report, titled “Tighter Bank Lending Prompts Nordic Companies To Rethink Their Financing Options”,says Standard & Poor’s expects bank loans to become more restricted and expensive due to reforms imposed on European banks following the global financial crisis of 2008-2009.
Stricter regulatory frameworks for banks and insurers are likely to result, at best, in a repricing of debt and, at worst, a rationing of credit for companies across the Nordic region, the report says. This increases the importance of prudent and proactive liquidity and funding management by corporate borrowers.
The report says currently low growth and interest rates and high equity market volatility mean that investors are searching for higher yields. What’s more, corporate treasurers are unlikely to want to rely excessively on uncertain bank financing following the severe dislocation of the financial markets in 2008. As a result, the report says, the capital markets will become an important source of funds for Nordic corporates. The timing is ripe for the emergence of fully functioning domestic bond markets in the Nordic region, and in Standard & Poor’s view the conditions are very encouraging.
That said, an immediate sea change is unlikely. Nordic banks remain relatively well-capitalized and liquid and investment mandates for large Nordic private and public investors are traditionally geared towards equity investments. Moreover, the report says, the domestic bond markets generally lack secondary market liquidity, are rather opaque, and transaction costs remains high.
In a related new report titled “Harsh Economic Conditions Will Put Nordic Issuers’ Solid Investment-Grade Ratings To The Test,” Standard & Poor’s examines the credit quality outlook for Nordic issuers in the sovereign, local government, corporate, banking, insurance, and covered bond sectors. The report says that most Nordic issuers should be able to weather a short-lived economic recession in Europe, given that the majority are rated in the investment-grade category (‘BBB-’ or above). However, in a downside scenario of a more severe recession, even the ratings on these issuers could come under some pressure.