Moody's: Global bank debt issuance levels off in 2014 after four-year period of decline

The four-year decline in issuance of unsecured debt by banks, thrifts and securities firms leveled off in 2014, says Moody's Investors Service in a new report. "Global Bank Debt - 2014 Issuance Trends" analyzes trends in the issuance of long-term unsecured debt instruments by financial institutions rated by Moody's.

"After declining for the past four years, unsecured debt issuance by the banks we rate increased slightly in 2014," said Robard Williams, a Moody's vice president. "Stabilizing operating conditions in some countries, and interest rates levels and various regulatory initiatives will continue to affect issuance volume."

In Asia, issuance by the banks Moody's rates grew 18%. The largest issuers were banks in Australia, with issuance up 13%, Japan, up 3%, and Korea, down 13%, although the biggest jumps were in China, up 162%, and in Singapore, up 409%.

In North America, US bank debt issuance rose 16%, as the economy continued its steady improvement, but declined by 47% for Canada, to a more normalized level following a 53% surge in 2013 as banks pre-empted the government's introduction of a bail-in regime for senior debt.

For Europe, the story varies: In non-euro Europe, issuance rose 17%, driven by the large Swiss (up 150%) and UK banks (up 68%). Issuance by banks in most euro area countries continued to decline, however, especially in Greece (down 71%) and Italy (down 15%), but rose in Belgium (61%), Germany (15%), and in the periphery countries of Portugal (380%), Ireland (185%) and Spain (25%).

In Russia, demand for funding and access to the capital markets declined, with issuance down by 65%, as the country enters recession and finds itself increasingly challenged by geopolitical events as well as depressed oil prices.

For 2015, Moody's expects that low economic growth in Europe will continue to weigh on the banks' balance sheet growth and funding needs, although business sentiment, credit demand and funding conditions have generally improved of late. In the US, strengthening GDP growth -- which Moody's is forecasting at 3.2% for 2015 and 2.8% for 2016 -- will be good for banks' financial strength and credit demand.

Moreover, banks' liability structures and, by extension, debt issuance volumes in 2015 will be affected by global and local regulatory developments, among them, (1) the growing focus on funding and liquidity standards, as well as the higher risk-based capital requirements and buffers under Basel III; (2) the move towards formal bank resolution regimes with provisions for bank-recapitalization burden-sharing with creditors (bail-in); and (3) the Financial Stability Board's proposals on total loss-absorbing capacity for the global systemically important banks, and for the European banks, minimum capital requirements in the event of resolution.