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The total volume of non-bank loans in US dollars has outpaced the growth rate of banks over the last decade – the compound annual growth rate of non-bank loans is 2.3%, compared to the compound annual growth rate of bank loans of 0.6%.
This trend may accelerate, as falling capital ratios due to Covid-19 impairment will limit banks’ creditworthiness, especially in Europe. Non-traditional sources of financing, such as private equity funds, sovereign wealth funds and credit funds, as well as national governments themselves, will have to contribute to the financing of economic recovery and further development.
Non-bank lenders, including private equity funds and sovereign wealth funds, lent $ 41 trillion in 2019, compared to $ 38 trillion lent by traditional lenders. PwC’s analysis shows that alternative fixed income investments (private debt) have experienced significant growth, which may make this type of investment an important category of non – bank loans. Since 2010, the compound annual growth rate of private debt has grown by 11%.
“The growing popularity of alternative capital providers, Covid-19 and the regulatory impact on traditional lenders have drawn attention to the further development of different financing models. Recipients of financial services are increasingly willing to pay more for fast service and higher risk for these relatively smaller financial market participants. In this way, the development of these market segments will be significantly stimulated.
Various challenges also await insurers and investment managers. According to the PwC report, near-zero interest rates, combined with the growing popularity of digital lenders, will reduce the percentage return on product portfolios, highlighting the need for rapid digitalisation, cost savings and real productivity gains. In addition, all this must be done in the light of national governments’ demands for increased spending and reporting on environmental, social and corporate governance initiatives.
Although the financial services industry has been relatively resilient to the effects of the Covid-19 pandemic, it could be severely affected as the situation develops. The job losses caused by the pandemic, business closures, rising debt and market fluctuations in a low interest rate situation are having a negative impact on the economy. The challenge for the financial services industry is to be able to survive these difficult conditions by balancing costs. Those who will be able to find the best balance and adapt to the new market conditions will be successful.
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