KBC Bank has instigated the first of their annual surveys on the reliance on bank-supplied credit facilities.
KBC appointed Research Now and BDRC to conduct a quantitative online study which resulted in 107 corporates responding as to their views on the changing relationships between banks and corporates and the availability of credit throughout 2008.
The survey concluded that the vast majority of senior corporate executives believe that bank-supplied credit will become less available in 2008; the credit crunch is sighted as one of the primary causes of this.
There is a mixed outlook on reliance on bank-supplied credit facilities in the new year half anticipate no change, over a third expect greater reliance, and about 1 in 5 predict lesser reliance. The vast majority believe bank-supplied credit will become less available in 2008 due to recent developments in the financial market, such as credit crunch, general financial insecurity etc. While almost half of respondents are confident that reliance on bank credit will remain the same in the new year, over a third anticipate increasing reliance to some extent.
The price of bank credit is widely expected to become higher in 2008. The vast majority anticipate increasing bank credit prices about 1 in 5 fear this increase will be significant. Scottish based respondents are most likely to fear a significant rise in the price of available credit.
When seeking funding, reliance on depth and quality of corporate banking relationships is mostly regarded to become greater this year. This is due to banks’ increasing caution and lack of trust. Over half of respondents describe existing corporate banking relationships as quite deep. The number of corporate credit defaults is expected to rise in 2008 again, reasons for this mainly allude to the credit crunch, a global tightening of credits, higher interest rates and a general downturn of the economy. While over a third of respondents do not expect the number of corporate credit defaults to change in 2008, more than half anticipate an increase about 1 in 10 to significantly higher levels.
Lending covenants are expected to tighten in the New Year reasons reflect the theme of caution, banks being more vigilant and the current financial environment. 60% expect a tightening of lending covenants relating to leverage in facilities offered to the corporate sector in 2008, whilst 33% do not anticipate any change.
“We are delighted to have initiated what will be the first of our annual surveys. This is a chance to air the corporate view of the current banking market situation. It provides us with an idea of where we are in the credit cycle. We all have a hunch that things are going to get tougher but this survey definitely puts some scale on things,” says Cameron Marr, general manager, KBC Bank, London.