Importance of locally sourced financing is demonstrated by banks’ retrenchment.
EMEA lending volumes in 2011 were the highest since 2007, topping $1tn, according to Thomson Reuters. But retrenchment in the syndicated loan market during the second half of the year showed the wisdom of sourcing overseas financing locally, wherever possible.
The first half drove the volumes, before the Eurozone crisis flared up in August and bank regulators began releasing details of their proposed capital requirements. Companies in general were not looking for acquisition or growth financing. Rather, some $753bn of loans were refinanced, 28 percent more than in 2010, Thomson noted.
Market conditions deteriorated sharply in the second half, as banks began selling portfolios to raise regulatory capital. But their distribution of business changed also: there was a marked decline in loans made to developing economies, especially the Middle East and Africa, in favor of lending to entities in banks’ home jurisdictions.
This provides yet more proof that MNCs should be seeking to finance their overseas initiatives in local markets, wherever possible. While the top tier banks say they will be there for their clients even in the worst of times, their retrenchment in the fourth quarter indicates otherwise.