Banks are becoming much more locally focused in their lending and are seeking to get more pension investors involved in filling the gap left by their diminished underwriting capacity, according to a group of banking executives speaking at a debt financing roundtable at PEI’s Infrastructure Investor Forum in Berlin.
“I do expect that banks will retreat to their local geographies,” said James Miller, head of Secured Debt Markets at RBS Global Banking and Markets in London. Egyptian banks, for example, will seek to provide more financing in Egypt and Saudi Arabian banks will do the same in Saudi Arabia, he said.
Miller’s fellow panelists – Vincent Gilles, chief investment officer at ADIC-UBS Infrastructure Investment, Marcus Kleiner, head of project and commodity finance at UniCredit and Dominic Nathan, head of infrastructure at Financial Security Assurance (FSA) – agreed with this sentiment.
During difficult financing environments, banks stick to markets they know best and are increasingly put under pressure to do so by governments that provide them with liquidity, according to panel members.
Miller admitted that it is difficult for RBS and other banks to do new business while they are under pressure to decrease the size of their balance sheet. As a consequence, they have to prioritise new lending in the following manner: core infrastructure, the importance of the borrower’s relationship to the bank and that relationship’s “pulling power” for new business, and, thirdly, the returns of the investment.
UniCredit’s Kleiner voiced similar concerns, saying that the bank is focusing on “mid-size” deals since opportunities larger than $2 billion to $3 billion in total size are very difficult to finance. He pointed to the need for banks to do club deals but said that many banks can drop out of a syndicate of lenders if their conditions are not met.
“We need eight to 10 banks to get a deal over the line,” Miller said.
In recent years, various large pension investors have shown interest in investing directly in debt themselves – a trend that Kleiner believes could help provide a potential source of liquidity for filling the gap left by banks’ decreased underwriting capacity.
“We have to get these parties even more interested and get them to fill the gap,” Kleiner said.
Nathan agreed and added that the bond insurers like the FSA could help play a role in bringing more pension investors to the table by helping them manage their fixed income investments.