May 1, 2020 / 12:21 PM / in a month

Banks boost lending to mid-market companies

LONDON, May 1 (LPC) - Banks are responding to regulators’ calls for them to ramp up lending to hard-hit European middle-market businesses struggling with the downturn caused by the Covid-19 outbreak.

The loans are providing companies such as British pub group Revolution Bars and UK furniture retailer DFS with much-needed liquidity at a time when lockdown measures have brought economic activity to its knees.

NatWest has increased its loan facility to Revolution Bars to £30m until end of August and has agreed to waive all financial covenant tests at March and June. Meanwhile, existing lenders to DFS agreed to grant an additional £70m 12-month bank facility to strengthen its balance sheet and help it through the crisis.

Santander has increased its new lending to SMEs and corporates across Europe, extending its daily average to €873m in April from €209m in February, according to the Spanish lender.

PAYBACK TIME

As lenders step in to support its borrowers, the perception of banks has switched from what it was over a decade ago during the global financial crisis.

“Banks faced a liquidity challenge and received a bailout in the last crisis, but this time is different. Banks are in a much better position with a robust balance sheet and liquidity; they become part of the solution to the downturn,” said a senior banker.

Regulators are also facilitating banks to cope with high demand for loans.

In March, the European Central Bank announced a relaxation in capital rules and demanded banks use the freed-up capital to help businesses to cope during the crisis.

“The central banks this time are playing a more active role in terms of economic stimulations,” the senior banker said.

In addition, European governments are providing state-backed emergency loans to inject liquidity into small and mid-market companies.

LENDING BINGE

While the majority of mid-market companies are scrambling for liquidity, banks are being forced to prioritise.

“We prioritise in terms of need,” said Patrick Nolan, vice-chairman and head of client leadership at HSBC.

“While help raising additional liquidity or capital is sometimes necessary, many clients require covenant amendments or facility extensions. We are happy to work with clients on such requests to help keep them afloat during this most challenging period.”

“We hope to help get them through into the first quarter of next year. Hopefully by then the situation will have improved,” Nolan added.

However, for those companies that found themselves in distressed situations prior to the Covid-19 pandemic, access to extra liquidity may prove very difficult.

“It’s tricky for these businesses, banks are probably hesitant to do more,” another banker said. (Editing by Christopher Mangham)

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