Challenges and progress in 2020, 3rd “Capital Markets Union Key Performance Indicators”
Brussels, 28 October 2020. The third edition of the “Capital Markets Union Key Performance Indicators” report has been published. It tracks how individual member states have progressed on key metrics such as access to finance, levels of bank lending, transition to sustainable finance and a supportive fintech environment. As previous editions, the collaborative report was authored by AFME with the support of the European Crowdfunding Network (ECN) for crowdfunding, the Climate Bonds Initiative (CBI), as well as European trade associations representing: business angels (BAE, EBAN), fund and asset management (EFAMA), retail and institutional investors (European Investors), stock exchanges (FESE), venture capital and private equity (Invest Europe), private credit and direct lending (ACC) and pension funds (Pensions Europe).
- Crowdfunding continues to play marginal role in capital market funding, but forthcoming harmonisation of EU regulation is expected to increase capital flows cross border
- Unprecedented levels of capital markets funding supported businesses in the first semester of2020
- Bond issuance has increased, with growth of social bonds consolidating Europe’s ESG leadership
- However, an undersized equities market means SMEs continue to rely on bank loans, restricting their opportunities to grow
- Securitisation volumes continued to fall, limiting bank’s capacity to expand their lending
European capital markets provided record amounts of funding to support businesses and economies in 2020,
but lack of progress on the Capital Markets Union could hold back Europe’s economic recovery, according to
a report published today (28th October) by the Association of Financial Markets in Europe in collaboration
with 10 other European and international organisations.
“Our report demonstrates that despite the economic shock from the Covid-19 pandemic, European capital markets were resilient in 2020 with unprecedented levels of bond market issuance including continuing leadership in sustainable bonds. However, a dramatic increase in bank loans means that Europe remains highly dependent on bank lending. Equally, while member states have taken steps to foster innovation in their economies, investment in fintech companies is still below that of other major regions such as the US and China.Adam Farkas, Chief Executive of AFME
If Europe is to achieve a strong economic recovery and ensure that it is globally competitive, further progress needs to be made in this e and other areas to strengthen its capital markets. The findings highlight the necessity for urgent action to encourage deep and extensive European capital markets beyond incumbent sectors. If crowdfunding will be able to finally live up to its aspirations will not be known until the sector has had a chance to exploit the forthcoming European Crowdfunding Service Provider for Business regulation (ECSP), though experience in individual member states provides positive indicators.
Overall key findings show that in the past 12 months, including the six months since the start of the pandemic, the EU has seen:
- SMEs continue to rely on bank loans: Bank lending to EU27 SMEs totalled EUR 573bn in H1 2020compared with only EUR14.1 bn in risk capital investment (venture capital, private equity, business angel and equity crowdfunding).
- Unprecedented levels of capital markets funding: funding from capital markets instruments, predominantly fixed income securities, increased by 44% YoY. This has resulted in an increase in the proportion of market finance for EU businesses from 11% in 2019 to 14.5%.
- Securitisation remains subdued: Covered bond issuance has increased 82% YoY (predominantly of retained covered bonds) driven by the large increase in new lending stemming from the COVID-19pandemic and the ongoing central bank support for this product. Securitisation volumes have fallen year-on-year since the onset of the STS regime. Loan Portfolio sales have fallen steadily since the peak volume of EUR 182.5bn was recorded in 2018 to EUR 28.7 bn during the first half of 2020 as banks continue to shed NPLs from their balance sheets.
- Growth of social bonds consolidates Europe’s ESG leadership: Throughout H1 2020, nearly one third (27%) of sustainable bond issuance in Europe was categorised as social, the largest proportion of the sustainable market in any half year to date.
- Record increase in personal savings: European households have increased their savings rate to record levels at 16% of their disposable income in 1Q 2020 (vs. 12% in 2019). However, most of those savings have been predominantly invested into low-yield bank deposits.
- Progress on fintech, but EU still lagging behind: Seven European countries launched fintech innovation hubs over the last year. However, investment into EU27 fintech companies during the first half of 2020 (EUR 1.5bn) continues below that of other major regions like the US (EUR 7.4bn) and the UK (EUR 2.1bn)
- European integration remains resilient: compared to the 2008 financial crisis, in 2020 there have been no signs of significant deterioration of European integration. The COVID-19 crisis has not significantly disrupted the intra-European cross-border funding flows, with companies seeking to raise finance within Europe to navigate the pandemic. Bond issuance marketed within Europe increased to 96% in 2020 vs. 93% in 2019 and 60% in 2007. Integration with the rest of the world slightly deteriorated in H1 2020.
We are grateful to AFME and its dedication to monitor the impact of the Capital Market Union and the collaborative relationship we are able to maintain with their team. Many relevant policy actions have been taken over the past years to improve capital markets across Europe and their impact can be measured. We are looking forward to help establish crowdfunding under its new regulation (ECSP) as growing factor in financing small- and medium-sized enterprises across Europe with investment from both, retail and institutional investors through an increasingly sophisticated crowdfunding sector.