Banks must raise about £390bn in new debt in 2011, or more than £30bn every month just to replace their existing funding as they are hit by a combination of maturing bonds and the closure of major Government-guaranteed financing schemes. Nomura analysts in a presentation yesterday, pointed to last month's Bank of England Financial Stability Report (FSR) as they warned of the funding crunch facing the UK's major banks. While the banks of other major European countries, such as France, Germany and Italy, face their own funding issues next year, none has to refinance anything like the same amount as the UK banks, which must replace debt worth just over 200pc of the average raised in the years 2005 to 2007. "UK banks face significant refinancing requirements over the next few years, as funds raised prior to the credit crisis mature," said Robert Law, co-head of banking research at Nomura. "Lloyds and RBS are undertaking substantial medium-term restructuring of their balance sheets. This target includes targets to reduce assets in nominal terms over five years. "In our view, this restructuring is partly aimed at managing their refinancing requirements, as well as reducing wholesale funding an particularly the proportion of short-term financing within that." Of the £390bn that must be raised next year, about £200bn will be in the form of maturing bonds and residential-backed mortgage securities that will require refinancing. The remaining £190bn consists of Government funding programmes; the Credit Guarantee Scheme; and the Special Liquidity Scheme, which the Bank of England insists will be phased out by the end of 2012. Mr Laws at Nomura is sceptical that Britain's banks will be able to wean themselves off Government support so quickly, but concedes that the authorities cannot let up the pressure on UK financial institutions to become fully-privately funded. In the FSR the Bank of England admitted that replacing all this funding would be a "substantial challenge", and put the total figure on the amount that UK banks need to refinance by the end of 2012 at between £750bn and £800bn, working out an average monthly fundraising rate for the next two and a half years of more than £25bn. This is double the fund raising rate for the years between 2001 and 2007 of £12bn. Raising this money will come against a much tougher backdrop for the banking industry, which though improved from the months immediately following the financial crisis of late 2008, is still far from the easy money years of the credit boom. In particular banks and investors will be looking for this Friday's publication by the European authorities of the results of a series of stress tests on the region's banks. The stress tests are intended to counter market scepticism surrounding the financial state of many of Europe's banks, ranging from the major financial institutions of Spain to Germany's small landesbanks. Since the beginning of July, no southern European bank has been able to access the international capital markets, while bond issues even from major northern European banks have not proved easy. Mr Laws and the Nomura banks research team are sceptical that the publication of the stress tests will soothe investor fears, and warn that any lack of transparency will be taken badly by the market.British Banks Face £390bn 'Funding Gap'
British banks face a funding crunch next year as they attempt to refinance debt amounting to double the amount they raised on average
during the years of the credit boom.
Wednesday, 21 July 2010
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