Bloomberg News

European Companies Expect Cost of Credit to Climb, Study Says

October 25, 2011

Oct. 26 (Bloomberg) -- The majority of European companies are expecting the cost of credit to increase over the next two to three years as the sovereign debt crisis prompts banks to reduce lending, according to a study by Allen & Overy LLP.

About 51 percent of European businesses expect their cost of funding to climb, while 96 percent of companies surveyed in the region said their need for financing will increase or remain the same over the next two to three years, the London-based law firm said in a statement today. About a third of European respondents said they are also more likely to tap the Asian Pacific markets for their financing needs in five years time.

“The demand for credit, whether to refinance existing debt or fuel business growth, will require exceptional creativity and resolve on the part of banks and markets,” Philip Wood, Allen & Overy’s special global counsel, said in the statement. “One of the key factors in enabling this demand to be met will be the position that regulators and governments take in encouraging, rather than restricting, the availability of credit.”

European Union leaders, who hold a second summit in four days today, are seeking an agreement on bolstering the region’s rescue fund, recapitalizing banks and providing debt relief to Greece to avoid contagion spreading to Italy and Spain. Banks in the region have to refinance 655 billion euros ($911 billion) of senior bonds next year and may need government backing if the debt crisis continues to limit their access to markets, according to analysts at CreditSights Inc.

Researchers interviewed 1,054 executives in countries including China, the U.K., U.S., Russia, Singapore and Japan between July 4 and Aug. 26, the law firm said.

--With assistance from Ben Martin in London. Editors: Edward Evans, Stephen Taylor.

To contact the reporter on this story: Ambereen Choudhury in London at achoudhury@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net


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