The issuance of global bank debt has declined over the past 12 months, reports Moody’s Investors Service; a fact that it attributes primarily to the knock-on effects of the European sovereign debt crisis.
Banks around the world issued approximately US$1.18 trillion in unsecured long-term debt over the 12 months ended September 30, the rating agency reports; which is 15% less than in the same period a year ago. And, it says, that global debt issuance is now at approximately half the level recorded at its peak, during 2007, before financial market turmoil took hold.
“The global decline has largely been driven by euro area banks, while issuance has decreased less for banks in most other regions and many Asian banks are even seeing robust growth,” said Tobias Moerschen, a Moody’s vice president. “Looking forward, we expect banks in mature markets to rely less on confidence-sensitive market funds than in the past.”
Moody’s reports that banks in the euro area experienced a sharp (26%) year-on-year drop in unsecured, long-term debt issuance, although those same banks saw improved issuance in the third quarter, “which could signal a degree of stabilization”, it suggests.
At the same time, North American banks saw a 10% decline in issuance during the 12-month period, while Asia was the only major region to see a broad-based increase in bank debt issuance.
Moody’s says that it expects that “banks in mature markets will shift toward more stable funding sources over time, because increased investor risk perceptions restrict demand for unsecured bank debt.”
It cautions that the transition to more stable funding profiles “will be particularly difficult for banks that are affected by the ongoing euro area crisis and for those that have relied heavily on market funds to date. Actions taken by banks to alleviate funding pressures include seeking to increase deposits, raising more covered bonds, and in some cases restricting new lending and shedding assets.”