The UK posted a 55 % reduction in its net debt funding gap over the last six months. This is well ahead of Europe as a whole which posted a 20% decline and the global gap down 17% over the same period. Europe continues to have the highest gap at USD86bn, with the remaining USD31bn in Asia Pacific. As before, we estimate there to be no funding gap in the Americas.
In our four step analysis, the net decline occurred despite the negative impact of new banking regulations. These regulations are estimated to more than double Europe’s refinancing gap of USD82bn to a gross debt funding gap of USD190bn. France, Germany and the Netherlands are most significantly impacted by these pending regulatory pressures. A dramatic 45% increase in new non-bank lending reverses this regulatory impact. Over the last six months, we note an increase as well as greater diversity in new non-bank funding. We are now aware of over ten insurance companies and over 30 funds providing debt financing. As before, we expect these groups to provide USD75bn of additional lending capacity over 2012-13. In addition, we estimate that continued growth in corporate bond issuance could provide an additional USD29bn of net new funding. In the near term, we expect two thirds of the non-bank activity to come from insurance companies. But, the growth in fund raising by fund managers should see a more even balance in lending capacity by 2015. In aggregate we forecast USD225bn of new lending capacity from insurers and funds over 2013-15. With the European net funding gap having shrunk by more than half by the end of 2013, we project that by the end of 2015 a majority of the work-out will have been completed. In the UK this could be earlier. We expect the tail end of the work out to take longer to complete representing 10-15% of the funding gap. This is on the assumption of available non-bank lending, continued low base rates and no further regulatory changes.
Source: DTZ (Groupe UGL)