Source: www.finews.ch

Swiss companies increasingly are resorting to the non-banking world to get their credits. A study has looked into shadow banking and into the players in this fast-growing business.
The amount of private debt outstanding is worth about 3 billion Swiss francs ($3 billion) in Switzerland, according to a study by Lucerne University of Applied Sciences and Arts. Private debt is another expression for corporate financing organized outside the traditional bond and banking markets.

Critics of this business coined it shadow banking, because it flourishes outside the corporate realm governed by the financial market regulator.

Rapid Growth Due to Negative Rates

And the business is growing rapidly. The money invested in institutional private-debt funds is estimated to amount to $750 billion globally, with $100 billion raised in 2018 alone. In Switzerland, the business witnessed double-digit growth over the past three years – mirroring the better known private equity business, which added 15 percent. The authors of the study expect the rate of growth to remain at similar levels.

One of the reasons for the rapid growth rates of this business are the negative interest rates imposed by the central bank. As long as pension funds and family offices can`t generate a sizeable return by buying government bonds, they see a need to tap into rather unconventional business models such as shadow banking. They already sell mortgages at prices that the established (banking) players find hard to match.

So the question is whether banks will have to fear for their business in yet another business traditionally in their hands. Unsurprisingly, the study was ordered by Schwyzer Kantonalbank, one of the Swiss state-owned cantonal banks, which are strong players in this particular segment of retail banking.

A Development Worth Watching Closely

Credits granted by banks are still by far the biggest source of financing for Swiss companies, the study revealed. Swiss banks had 251 billion francs in mortgages and 105 billion francs in corporate credits open at the end of 2018.

The share of corporate credit issued outside the traditional channels hence is in the low single digits. Small- and medium-sized companies expressed their satisfaction with the service provided by the banks, the study authors wrote.

Still, it is well worth watching the development closely because the study also said that the new players will contribute to lower rates for the foreseeable future. This would squeeze margins of banks.



Back More News