FINANCING CORPORATE INVESTMENT ALONG THE RECOVERY: THE CASE OF SPAIN
Óscar Arce Associate Director General Economics and Research
27 March 2017 GIC – Central Banking Series Session II: From the Eyes of the Central Banks
ADG ECONOMICS AND RESEARCH – DG ECONOMICS AND STATISTICS
Disclaimer
These views are the author’ ones and do not represent those of Banco de España or the Eurosystem
Do not distribute without the author’s permission
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This talk: three key issues
- Squaring strong investment with strong deleveraging forces: ďƒ˜ How are Spanish firms financing their investments?
- Credit allocation before, during and after the crisis: ďƒ˜ Have lenders changed their attitudes towards credit giving after the last credit boom?
- Banking vs market-based finance: ďƒ˜ Towards a more balanced mix?
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The recovery of the Spanish economy: Deleveraging-cum-investment
INVESTMENT (MACHINERY AND EQUIPMENT) 2008 q1 = 100
EQUIPMENT INVESTMENT AND NFCS DEBT 130
2008q1=100
105 120
100 95
110
90 100 85 90
80 75
80
70 70 65 60
60 2008
2010
2012
SPAIN
2014
2016
2012
2014
2016
INVESTMENT (SPAIN)
NFCs DEBT (SPAIN)
INVESTMENT (EURO AREA)
NFCs DEBT (EURO AREA)
Euro Area
Source: Banco de España, Eurostat
4
Internal funding has been key during the crisis and the recovery.
% of GVA NFC
Uses
Resorces
INVESTMENT AND FINANCING FLOWS 70 60 50 40 30 20 10 0 -10 -20 -30 -40 -50 -60 -70 90
91
92
93
94
95
96
97
98
99
GROSS FIXED CAPITAL FORMATION FINANCIAL DEBT OTHER EXTERNAL FINANCING OTHER
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15 16 III
INTERNAL FUNDING (GROSS SAVING) NEW SHARES AND OTHER EQUITY FINANCIAL ASSETS
Source: INE, Banco de España
5
Aggregate deleveraging has been compatible with a significant share of investing firms raising their indebtedness
ASSETS AND LIABILITIES OF NFCs WITH POSITIVE OR ZERO NET INVESTMENT. FLOWS 80
% GVA 40
30
60
30
60
20
40
20
40
10
20
10
20
0
0
0
0
-20
-20
-40
-30
-60 -80
-40 2008
0 -1 -2 -3 -4 -5 -6 -7 -8 -9 -10 -11 -12 -13 -14 -15 -16 -17 -18 -19 -20 -21 -22 -23 -24 -25 -26 -27 -28
2009
2010
2011
2012
2013
2014
NET CAPITAL INCREASE FINANCIAL DEBT FINANCIAL INVESTMENT OTHER NET FLOWS (ASSETS - LIABILITIES)
2015
Uses
-10
Resources
Resources
%
% GVA 40
Uses
ASSETS AND LIABILITIES OF NFCs WITH NEGATIVE NET INVESTMENT. FLOWS % 80
-10
-20
-20
-40
-30
-60 -80
-40 2008
2009
2010
2011
2012
2013
2014
2015
INTERNAL FINANCE GROSS FIXED CAPITAL FORMATION NET TRADE CREDIT (ASSETS - LIABILITIES) FIRMS AS PERCENTAGE OF TOTAL (Right-hand scale)
Source: INE, Banco de España
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Following the burst of the crisis, credit has been allocated towards firms that on average are more productive…
PROBABILITY OF OBTAINING A CREDIT: TIMEVARYING COEFFICIENT ON TFP
AVERAGE DIFFERENCE OF TOTAL FACTOR PRODUCTIVITY BETWEEN FIRMS WHOSE CREDIT DIMINISH AND THOSE FIRMS WHOSE CREDIT DO NOT DIMINISH (T-1) %
2.5
14
2
12
1.5
10
1
8
0.5 6 0 4
-0.5 -1
2
-1.5
0
-2
-2 2004-2007
-2.5 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: INE, Banco de España
2008-2013
2014-2016
INDUSTRY TRADE AND ACCOMMODATION INFORMATION AND COMMUNICATION CONSTRUCTION AND REAL ESTATE ACT. OTHER SECTORS
Source: Banco de España
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…and with sounder financial fundamentals
IMPACT ON THE PROBABILITY OF INCREASING OR MAINTAINING CREDIT LEVELS Coefficients 2005-2008
Coefficients 2009-2013
Coefficients 2014-2015
0,031***
0,005_
0,028**
Debt Burdenit-1
-0,063***
-0,089***
-0,093***
Indebtednessit-1
-0,162***
-0,205***
-0,254***
Sales Growthit-1
0,010***
0,007***
_0,009***
Employment Growthit-1
0,014***
0,010***
_0,016***
Number of firms
310.152_
346.915_
172.046
Observations
638.429_
822.559_
227.154
Profitabilityit-1
Source: Banco de España
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In the new context, banks discriminate firms on the basis of their fundamentals much more than during the boom
PROBABILITY OF GETTING A LOAN FROM ANY BANK
%
80
70
MEDIAN FIRM 60
AVERAGE FINANCIALLY WEAK FIRM AVERAGE FINANCIALLY STRONG FIRM
50
40
30 05
06
07
08
09
10
11
12
13
14
15
16
Source: Banco de España
9
Against a background of diminishing financial fragmentation in the EMU, credit conditions faced by Spanish NFC have improved significantly SHARE OF FIRMS WITH CREDIT CONSTRAINTS. BREAKDOWN BY SIZE
INTEREST RATES, NEW LENDING UP TO €1M %
%
6.0
30
5.5 25 5.0 20
4.5 4.0
15
3.5 10 3.0 5 2.5 0
2.0 11
12
13 Spain
14
15 Core euro area
16
17
SPAIN
EMU 2011-2012
MICRO
Source: Banco de España, ECB, SAFE
SPAIN
SMALL
EMU 2015-2016
MEDIUM-SIZED
LARGE
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In spite of such improvement, market-based financing is gaining much prominence in Spain
WEIGHT OF FIXED-INCOME SECURITIES (FI) OVER FINANCIAL DEBT (FI + CRED), NFC
%
50
40
30
20
10
0 GERMANY
ITALY
EMU
SPAIN
JAPAN
2007
Source: Banco de España
FRANCE
Q2-2016
UNITED KINGDOM
UNITED STATES
CERO
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In recent times, the the Eurosystem's corporate sector purchase programme (CSPP) has accelerated further this trend
LOANS AND FIXED INCOME GROSS ISSUANCE
INTEREST RATES. CORPORATIONS 3.0
12 month average
CSPP Mar 16
%
CSPP Mar 16
b€
155 153
2.5
19 18
151
17
149
2.0
b€
16
147 15 145
1.5
14 143 1.0
13
141
12
139 0.5
11
137 135
0.0 2014
2015
2016
LOANS OVER 1 EUR MILLION NON FINANCIAL CORPORATIONS BONDS (BBB) BANK BONDS (BBB)
Source: Banco de España
10 2014
2015
2016
NEW LOANS OVER 1 EUR MILLION LONG TERM FIXED INCOME BONDS (RHS)
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But, beside substitution effects, the CSPP is unchaining positive spillovers to non CSPP-ellegible firms through banks’ credit reallocation
Changes in outstanding loans by corporation and type of bank (feb 2016 vs aug 2016)
Loans to bond issuer corporations
b€ 60
20%
CSPP Announcement 50
15% 40 10%
30
201609
201608
201607
-5%
201606
0 201605
0% 201604
10 201603
5%
201602
20
-10% micro and small medium firms large firms firms Banks with negative outflow with issuing firms Banks with positive outflow with issuing firms
Fuente: Arce, O., Gimeno, R., y Mayordomo, S. (2017). “Making room for the needy: The effects of the CSPP program”. Work in progress.
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Some conclusions & issues for discussion
- Key aspects to understand why an economy may grow and invest even while deleveraging Heterogeneity at the firm level Non-banking sources of finance (internal, markets) The “quality” of credit allocation - What is the nature, scope and persistency of ongoing bank disintermediation? Temporary (?) factors: Current low interest rates, regulatory uncertainty, expensive and scarce bank capital, …. Persistent factors: new regulatory landscape, development of new market infrastructures, initial investment/hysteresis…. 14