N° 34 : French banks’ financing of property market professionals in 2013

This increase was driven by two main components: new lending to overseas professionals (+19% in Europe alone) and new lending to property investors and property companies (+3%). Trends in new lending varied across banks, however, with some continuing to cut back loan production, and others boosting their activity over the year.

After declining by 2.9% in 2012, French banks’ exposure to property sector professionals stabilised in 2013, inching up just 0.5% year-on-year. Their exposures were concentrated primarily in France (68.8%) and, outside France, in the European Union (notably Italy and Belgium) and the United States. As in 2012, exposures were concentrated on investors and property companies. A breakdown of exposures by sector shows that the vast majority of outstanding loans were used to finance residential property (40.9%), followed by office space (17.5%), and then commercial premises in third place (14.9%).

Bank’s lending criteria reflected the ongoing difficulties in the economic environment: after tightening steadily over the past few years, they remained unchanged in 2013 or were tightened further, particularly for property developers and borrowers in sluggish foreign property markets.

The average quality of banks’ exposures stabilised in 2013: after hitting a peak in 2010 and then falling in the two subsequent years, the non-performing loan ratio remained relatively high in 2013 (8.3%), up slightly versus 2012. In parallel, the coverage ratio increased to 37%, the highest since 2008.

French banks again sold off high volumes of illiquid legacy assets from the financial crisis, and have thus reduced their exposure to this type of asset.