Systems of Corporate Financing Evolution in corporate financing structures over the past decade

Transcription

1 Systems of Corporate Financing Evolution in corporate financing structures over the past decade Workshop "The future of corporate financing in an integrating EU financial market" organised by the European Commission Directorate General Economic and Financial Affairs Brussels, November 27, 2006 Cesare Ravara, Credit Suisse Economic Research Economic Research

2 Motivation (1/2) Declining domestic bank loans in Switzerland CHF billion % 180% 160% 140% 120% 100% 80% 60% 40% 20% as % of nominal GDP % Total Domestic Loans Coroprate Loans (Limits) (1./2./3. Sector) Coroprate Loans (Utilization) (1./2./3. Sector) Total Domestic Loans / GDP Coroprate Loans (Limits) / GDP Coroprate Loans (Utilization) / GDP Source: SNB, Credit Suisse Economic Research Slide 2

3 Motivation (2/2) Country comparison of external financing (transactions) of non-financial companies: Bank or capital market dominated? Average annual financing flows (net) between beginning of 1993 and end of 2004 Net borrowing (+), net repayment (-), proportion as percentage of net borrowing % % % % % % % % % n.a % % % n.a % % 0 Source: OECD, financial accounts; SNB; Credit Suisse Economic Research Slide 3

4 Structures and systems of corporate financing Main questions 1. Which financial system dominates in Switzerland compared to other countries, the capital market or the bank based system? 2. Is there any convergence to be seen in the intermediation process for corporate financing? 3. What challenges might banks face as financial intermediaries for corporate clients? Slide 4

5 1. Which financial system dominates? (1/3) Overview of significance of stock, bond and credit markets by country (2005) Switzerland US UK Germany Japan Stock Market Market capitalization as % of GDP Listed dom. companies per million inhabitants IPOs of dom. companies ( )/ population (per mil. inhabitants) Ø new issues volume per IPO ( ) in CHF million n.a. Bond market Market volume as % of GDP of which financial sector of which non-financial companies Credit market Corporate credit volumes as % of GDP of which financial sector of which non-financial companies Stock markets: Switzerland (Swiss Exchange), US (aggregate of Amex, Nasdaq and NYSE), UK (London Stock Exchange), Germany (Deutsche Börse), Japan (Tokyo Stock Exchange) UK: bond market figures as of September 2004 Japan: credit market figures date from 2004 Source: WFE; BIS; various national statistics, Credit Suisse Economic Research Slide 5

6 1. Which financial system dominates? (2/3) Capital structure of non-financial companies 100% 80% 60% Proportion as percentage of overall liabilities % 20% % US UK Germany Japan Switzerland Bonds Shares and other equity rights Loans Supplier credits and advances received Other liabilities Source: OECD, financial accounts; Credit Suisse Economic Research Slide 6

7 1. Which financial system dominates? (3/3) Intermediary conclusion Prediction not always clear Depending on perspective (banks' assets or liabilites) and mix of indicators used Hybrid systems dominate Switzerland: a hybrid financial system with considerable elements of both the bank and the capital market based system Slide 7

8 2. Is there any convergence? Convergence in the process of information allocation Source: Credit Suisse, Economic Briefing Nr. 39 Slide 8

9 3. What challanges for banks and their corporate financing business? Changing environment Repercussions Increasingly demanding business environment Competition from outside the banking sector (near-bank and non-bank financial services providers) Increasing demand for adequate finance mix in order to respond to innovation, progress, rapidly expanding new markets, shorter product life cycles, successions, etc. Changes in the risk landscape Focus on client centricity Erosion of traditional business areas Focus on advisory business, problem analysis, tailor-made banking, comprehensive solutions, multichannel distribution, high quality in processing, service and consulting Increased need for transparency, metamorphosis of the information and risk allocation in bank based system Holistic opportunity-risk management Chance for banks to display their expertise in handling information and risks = Core Competency Slide 9

10 Conclusion The convergence does not substitute banks as financial intermediaries but keeps them running. Publications Economic Briefing No. 39 Slide 10

11 Systems of Corporate Financing Evolution in corporate financing structures over the past decade Workshop "The future of corporate financing in an integrating EU financial market" organised by the European Commission Directorate General Economic and Financial Affairs Brussels, November 27, 2006 Cesare Ravara, Credit Suisse Economic Research Economic Research