VIENNA, Dec 4 (Reuters) - Austria’s markets watchdog will let insurers make direct loans to top-rated companies from next year, giving insurers a chance to boost investment returns at a time of low interest rates and providing another source of finance for domestic firms.
The Financial Market Authority (FMA) said on Wednesday the change could generate up to 4.2 billion euros ($5.7 billion) in such loans.
The estimate is based on the experience in neighbouring Germany, which already allows the practice, the FMA said in August when proposing the plan.
The rule change that takes effect in January provides insurers “an additional revenue-enhancing investment opportunity in a low interest rate environment while opening up a significant volume of financing for the domestic economy and preserving the required protection of insurance customers”.
The move lets insurers such as Vienna Insurance and Uniqa make long-term senior loans to investment-grade corporate borrowers with stable cash flows.
It sets limits on how much insurers can lend and on exposure to individual borrowers.
Austrian companies still rely mostly on bank loans rather than capital markets for financing, and bank lending margins are among the lowest in Europe.
Bankers have given the change a mixed response, with some complaining that added competition is the last thing they need, but others saying such long-term bank loans are rare.
$1 = 0.7360 euros Reporting by Michael Shields; Editing by Mark Potter