The global debt funding gap has been cut by 27% over the past six months. It is now estimated at US$142bn down from US$196bn six months ago (Figure 1). More detailed data from our recent bank survey has triggered a 74% reduction of the Japanese debt funding gap in the last 6 months.
Unfortunately, Europe continues to struggle, as downgrades to our capital value forecasts have led to a 4% increase in the funding gap. The UK, Spain and Ireland have all seen an increase in their gap on both an absolute and relative basis.
Sufficient equity remains available to bridge the debt funding gap. Globally, there is nearly $400bn of equity available – nearly three times the current gap. Significant regional differences remain. The European ratio is less favourable as US$156bn of equity is available to bridge a US$122bn debt funding gap.
Banks are taking steps to shrink and deleverage their balance sheets with a growing number of loan sales being brought to the market. Loan sales are likely to increase as regulatory authorities require banks to further bolster their capital reserve positions. We view the recent interest from SWF and other institutional buyers of such loan portfolios as a very positive sign. Discounts might come in, as return requirements become more realistic.
Increased lending from insurers, institutions and other niche lenders has started to provide new capacity. Based on this, we have raised our estimate of new non-bank lending for the next three years by over 80%, from $80bn to $150bn.
|Global debt funding gap||3|
|Current market status||6|
|Outlook - Bridging the gap||8|