Dario Scannapieco, Vice-President

Dario Scannapieco
European Investment Bank (EIB)
23 October 2014
Ladies and Gentlemen,
I am extremely glad to see such a great cooperation between the
EIB Group and IMF in organising today’s event. Clearly, we are two
different institutions but we share the same mission to restore
market confidence and to reactivate the economic lending.
The economic crisis has not ended and we are now in a demand
crisis to which the different IFIs have to respond by adapting their
In most European countries, the external financing of businesses,
particularly the smaller ones, greatly depends on the banking
The present crisis has presented us with a fragmented European
banking market, which is holding up economic recovery.
Much has been done to mitigate this fragmentation: from the nonconventional policies of the ECB, which have sterilised the systemic
liquidity risk, to the progress made in the institutional set-up towards
a more efficient European banking industry.
Positive results have been achieved here, which were nevertheless
unthinkable at the beginning of the crisis. However, something more
still needs to be done to free up the financing of business, to sustain
investment and thus stimulate growth.
In particular, with regard to companies (and SMEs in particular,
which represent well over 90% of European businesses), it is
fundamental - in addition to providing liquidity - to sustain the further
development of the capital market and the capacity of the banking
sector to assume risk.
At an aggregate level, companies have wherever possible swapped
banking borrowing for self-financing and the issuing of debt on the
capital market.
Although the percentage of bonds compared to total corporate debt
went from about 7.5% at the end of the crisis in 2008 to around
11.5% at the end of 2013, it cannot make up for the lack of credit
from the banks. Furthermore, the diversification of sources of
financing has remained limited almost exclusively to the larger
companies and to those in countries with more developed corporate
bond markets.
MFI loans to NFCs
net issuance of quoted shares by NFCs
net issuance of debt securities by NFCs
In the meantime, the quality of credit on banks balance sheet has
deteriorated throughout Europe. The percentage of Non-Performing
Loans (NPL) compared to total assets has gone up in all the EU
countries, in some cases reaching decidedly high levels (Greece,
Cyprus, Hungary and Slovenia).
Figure 2: Banks’ asset quality – Non Performing Loans in time (% of total loans,
The Asset Quality Review (currently under way) and the Stress
Tests could be an opportunity to re-launch the NPL market. The
banks are obliged to make an accurate valuation of their own
assets; they will have to set aside reserves to deal with possible
write downs and write offs and will be encouraged to put NPL
portfolios on the market to free up capital that can be used for new
The standardisation of the definition of NPL at European level,
greater legal effectiveness of the enforceability of creditors' rights, a
system of fiscal deductibility for provisions and write offs are all
factors that could contribute towards relaunching the NPL market, a
market that has enormous potential for investors, with estimates
varying between 700 and 1500 billion [Euros].
However, at the same time, we also have to work on reducing the
dependence of small firms on the banks. Their financing options
must be more diversified.
Markets in Europe such as those of the mini-bonds, private equity
and venture capital, crowd-funding are highly concentrated at the
moment in a few countries and must be developed more widely.
Furthermore, the European ABS [Asset-Backed Securities] market
should be revitalised: we need only remember that the ABS market
in the EU is about a quarter the size of the USA market.
Since 2008, the securitization market in Europe has shrunk by 30%.
Demand for ABS has been inhibited by the recession, by investors'
worries about the quality of the pool of underlying assets, the bad
reputation that ABS inherited from the 2008 crisis, and by the
extremely cautious subsequent regulations.
In particular, the development of the securitization market for loans
to SMEs would help to transform relatively illiquid loans into liquid
assets, with tangible advantages for the banks, for the small and
medium enterprises themselves, for investors and for the entire
The need to relaunch the ABS market to improve conditions in the
credit market (and also to improve the transmission of monetary
policy) was highlighted by the ECB, which recently announced its
own programme for acquiring ABS and covered bonds.
But the relaunch of the securitization market in Europe requires a
more gradual regulatory approach.
A recent study by S&P shows that the default rate of securitizations
issued in the European Union between 2007 and 2013 was barely
0.05% - compared with 18.4% of the same type of issue in the USA
over the same period. It is obvious that we have to maintain an
adequate level of caution towards complex structures, but it is
important to avoid excessive regulation that would overly penalise
investors and thus impede the relaunch of the securitizations. To
give you an example: under the new framework of Basel III, the risk
weightings proposed for AAA tranches are up to eight times higher
compared to present regulations.
The future regulatory picture will therefore have to make a clear
distinction between securitizations of low and high quality, granting
the latter a treatment that is closer to the actual risks incorporated.
Another policy option for dealing with the banks' capacity for
assuming risk is the use of loan guarantee systems, an instrument
that has shown extraordinary development in reaction to the crisis.
These consist of guarantees on loans to debtors such as SME's,
which have limited access to credit, by means of covering a portion
of the loan's risk of default. The loan guarantees are typically
provided by national governments, private entities or international
financial institutions such as the EIF, which specialises in providing
equity and guarantees in favour of SMEs.
By reducing the risk associated with granting loans, guarantee
schemes contribute to developing credit and improving its
conditions, often reducing the guarantees required to borrowers and
widening the range of debtors to entities that would otherwise be
excluded from the credit market.
As we find every day at the EIF, the key challenge in planning
guarantee schemes is finding a balance between financial
sustainability on the one hand and the financial and economic
additionality on the other. In particular, it is important that risks are
shared in a balanced way between creditor, debtor and guarantor.
The cardinal points of structuring operations of this kind are
therefore experience and knowledge of the financial models and the
identification of the most appropriate legal protections. For the EIF,
which is a supranational financial institution, I would add that the
ability to value the impact of such operations on the real economy is
also important.
In this regard, allow me to focus for a moment on how much the EIB
Group offers support for SME's, which remains one of its main fields
of activity: last year, the EIB and the EIF undertook operations
worth 21.9 billion in favour of European SME's.
Loans to SMEs conveyed by the banking system remain the
instrument of easier access for small businesses. But, through the
EIF, the Group has created specific products to fill various market
gaps. These products sometimes focus on single geographic areas,
with the collaboration of the local authorities, or on single sectors, or
on particular risks that the market is not willing to take on.
The instruments range from the traditional loan, to investments in
Venture Capital funds and Private Equity, to guarantees of loan
portfolios (senior tranches or mezzanine tranches) also in the form
of ABS. On this last instrument, I believe the expertise of the EIF
and the type of work that it does already can be complementary to
the programme announced by the ECB for acquiring ABS.
To conclude: today we need political action to stimulate credit. That
stimulus - in a widely bank-based economy such as we have in
Europe - means de facto stimulating economic growth.
Merely providing liquidity cannot be the only measure for easing the
obstacles to access to credit for the real economy. We also need
solutions that would make it possible to offload the credit risk from
the balance-sheets of the banks.
We have to work having in mind some clear objectives:
• Widening the sources of finance for European businesses;
• Restoring the ability of European banks to lend, in particular by
eliminating the obstacles that make it difficult to take on major risks;
• Concentrating efforts and resources of the public sector where the
market is unable to provide effective solutions.
But it's obvious that any initiatives aiming to facilitate access to
financing for SME's must, in the current situation, be part of more
general policies that support aggregated demand and, in particular,
that would boost investment starting with tangible and intangible
Positive signals on the need to revitalise investment were put out
during the recent informal Ecofin in Milan, in which the EIB and the
Commission were asked to prepare a report on this topic.
However, in a context of reduced room for manoeuvre for
expansive fiscal policies on the part of the public sector in many
countries and scarce private investment, due to the uncertainty with
regard to the economy and often to legal and administrative
inefficiencies and complications that don't encourage people to
invest, the challenge regarding growth remains difficult - but not
impossible to win.
Thank you for your kind attention.