BNP Paribas Tops in Market Penetration, BNP and Deutsche Lead in Quality

Low interest rates and new capital requirements for banks have combined to alter the workings of European corporate finance. Companies that have long relied on bank loans for long-term funding are replacing these traditional funding sources with bond issues.

Amid these dramatic changes, BNP Paribas has established itself atop the European corporate banking market by securing relationships with 56% of the largest European companies.

BNP Paribas is joined at the top of the market by Deutsche Bank, which claims relationships with 51% of these large companies, HSBC, which has a market penetration of 49%, RBS at 43% and Citi at 39%. These banks are the 2014 Greenwich Share Leaders in European Corporate Banking among top tier companies as ranked by annual turnover. The 2014 Greenwich Quality Leaders in this critical market are Deutsche Bank and BNP Paribas. 

Companies Replacing Bank Financing with Bond Issues
For the past several years, Greenwich Associates research has shown that large European companies have been supplementing term loans and syndicated loans with debt capital markets issues. This shift has been driven by two main developments:

1. New capital reserve requirements have made banks less generous with credit

2. Low interest rates and strong demand from investors for corporate and high yield bonds have opened the bond market to a much larger universe of corporate issuers, providing companies with a relatively low-cost funding option

Over the past 12 months, these conditions have prompted many large companies to go one step further. “Now, instead of using debt capital markets alongside bank loans, companies are using bond issues to replace the bank credit that has for so long been a staple of their funding bases,” says Greenwich Associates consultant Dr. Tobias Miarka.

Companies Using Fewer Banks  
Companies of all sizes are using fewer corporate banks. From 2011 to 2012 the average number of banks used by large European companies declined to 7.3 from 7.9. Two trends are driving this decline:  Companies are unwinding bank relationships they added as a defensive measure amid mounting bank counterparty risk during the financial crisis, and driven by increased capital costs, banks are also ending relationships.

This consolidation of relationships is having a significant impact on the competitive landscape of European banks. In particular, corporate banking relationships are shifting from global banks to large national players—a move that reverses the long-time trend in which the largest global banks had been claiming relationships and market share from local banks in most European markets.

Credit Supply Outpacing Corporate Demand
Despite changes in bank lending practices triggered by the Basel  III capital requirements, there is no doubt that conditions overall are improving dramatically for most European companies as the global financial crisis and the sovereign debt crisis recede from the horizon.

“It is important to note however that about one-in-10 large European companies say their access to funding for cap-ex, acquisitions and ongoing operations has been further curtailed over the past 12 months, reflecting the fact that conditions for companies in certain country markets or with weak credit ratings remain difficult,” says Dr. Tobias Miarka.

Corporate Treasurers Focus on Regulations and Compliance Issues
Regulatory and compliance issues surged toward the top of the list of corporate treasurers’ risk management priorities. In 2012, 62% of corporate treasurers named regulatory and compliance issues as a top risk management priority, ranking that topic only eighth in those terms behind such issues as efficiency in working capital management, reputational risks, financing risks and business interruption risk.

In 2013 the share of treasurers citing regulatory and compliance issues as a top priority jumped to 73%, making it companies’ second-most pressing concern behind only cost management.