France Introduces First Capital Buffer Requirement As Corporate Borrowing Spikes

12. June 2018.

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Rising corporate debt in France has led officials in the country to introduce the market’s first capital buffer requirements for banks, according to Reuters reports on Tuesday (June 12).

Following a spike in borrowing by the private sector, the nation’s financial stability council is reportedly requiring banks to set aside capital to cover losses from any bad corporate loans. Reports said the nation’s Finance Minister Bruno Le Maire is imposing a counter-cyclical buffer amounting to 0.25 percent of lenders’ risk-weighted assets.

The capital buffer also applies to foreign banks lending in the country.

The initiative follows a recommendation by France’s central bank. An unnamed source told Reuters that all lenders currently meet the capital buffer requirements.

The French Banking Federation (FBF) denounced the measure.

“Credit in France is safe, as the low cost of risk and the very low rate of non-performing loans shows,” Marie-Anne Barbat-Layani, head of the FBF, told the publication.

Data from the Bank of France shows that corporate borrowing increased year-over-year by 5.1 percent in April. Private sector debt is now equal to 130 percent of GDP, the eurozone’s highest, reports noted.

The issue of rising corporate debt in the country has weighed on the minds of regulators for several months. Last December, the central bank introduced a borrowing cap for businesses with the most debt, another unprecedented move for France. That cap applies to about 10 businesses.

“We consider that there is a risk that big companies in particular are going too far,” said Bank of France Governor François Villeroy de Galhau at the time.

The move followed revelations that more than half of the increases in business borrowing across the eurozone came from France, despite the nation accounting for just a fifth of the EU’s GDP.

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