How the Recovery Fund affects banks

By Leonidas Stergiou

The Recovery Fund may boost overall financing to the real economy and boost investment, but in the short term it limits the ability of banks to lend large. This is because the investment plans included in the Recovery Fund are co-financed. Therefore, only one part corresponds to bank lending and even with a low interest rate due to competition, but also the alternative of bond issues.

Thus, from the net credit expansion of 6.5 billion euros in 2020 to large companies (with a turnover of over 25-50 million euros, major infrastructure projects and shipping), 2022 will be limited to 2020 levels, ie around at 3.5-4 billion euros. If a € 1 billion investment project is included in the Recovery Fund, then about 50% will be financed by the Fund at an interest rate of 0.35%, 20% will be an equity contribution, so banks will have to finance the remaining approximately 30%. %, ie EUR 300 million.

From the above example it follows that the pie from the total funds of the Recovery Fund is limited to the banks. For 2021, 1.5 billion disbursements are expected from the Fund. Of these, the loans will be 600m euros. So the pie is getting smaller and the four systemic banks will have to gain shares by offering competitive interest rates. If, for example, the part that is financed with 0.35% by the Fund, the part of the bank lending can not cost as much as a business loan with eg 2%. There, the competition and the alternative of cheap (still) raising capital from the markets, will drop it even to 1% to 1.5%.

Of course, the share battle is vital, as it puts banks in an uptrend that will be boosted by the Recovery Fund investments and will create new demand for business loans. It is estimated that this multiplier by 2026 translates into a new demand for business loans of 10 billion euros.

In this first phase, however, the investment plans that will be included in the Recovery Fund, which correspond to loans of 10 billion euros in the three years, concern already determined and prepared business moves. That is, a business that has no investment plan or purpose for expansion and lending is not going to do it just because 50% will be funded by the Recovery Fund. Therefore, the clientele is specific.

Thus, the emphasis in 2022 will be on retail banking, which includes loans to small and medium-sized enterprises, as well as loans to households (housing and consumer). In retail banking, the interest rate margin is much higher, while the demand, especially for mortgages and consumer goods, is high. Like the demand from medium and small businesses, but there the number of eligible companies is smaller.

Moreover, it is indicative that, according to the data declared by the banks in the Hellenic Banking Association for the loans of 2022, 60% will concern the retail and 40% in business. The total amount of new disbursements for 2022 is between 8 and 10 billion euros. These do not take into account refinancing, factoring, etc.