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Banks play central role as facilitators in Europe’s growing alternative finance market

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The continued involvement of traditional lenders in the alternative finance space is contributing to the development of a pan-European private placement market.

Corporates are increasingly looking cross-border for their investment needs and being spoilt by a wealth of funding sources.
 
That’s according to YouGov research published by Allen & Overy, which shows that privately placed loans intermediated by banks have grown more common in use in the past year to become the top format for alternative funding. This format is used by 54 per cent of corporates and 61 per cent of investors, up from 48 per cent and 58 per cent, respectively, in 2015.
 
Philip Smith (pictured), a partner in Allen & Overy’s finance practice says: “Although there have been distractions such as the ECB’s QE programme, the alternative finance market seems to have made some pleasing progress over the past year. An undeniable factor in its development is the involvement of banks in transactions as intermediaries – they have a crucial role to play in matching up investors who have capital to put to work with borrowers keen to raise funds in order to realise their business plans. What the market needs to do now is continue the educational drive around best practice and standardisation that began last year, so it can really flourish.”
 
The survey, of over 360 respondents split evenly between senior finance executives at corporates and senior decision makers at investors across Europe, revealed that while bank lending remains the largest source of funding for European corporates, accounting for on average 48 per cent of all funding, alternative finance is a solid component of the funding mix. Accounting for 33 per cent overall, it continues to plug the gap left by the sharp decline in bank lending the world witnessed immediately after the financial crisis. Capital markets accounts for 19 per cent.
 
The outlook for small and medium enterprises is particularly bright. Nearly half (44 per cent) of investors said they plan to increase funding for small businesses, with almost two-thirds (64 per cent) forecasting an increase to medium enterprises over the next five years.
 
While awareness of the market initiatives to further the growth of alternative finance – such as the pan-European corporate private placement market guide and standardised transaction documentation – remained broadly the same among investors (76 per cent), corporates reported a drop in awareness, down to 53 per cent from 76 per cent in 2015. 

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