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Panic borrowing calms as firms repay credit lines

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Pay back: Deutsche Bank says several corporate clients have started repaying credit. Photo: Alex Kraus/Bloomberg

Pay back: Deutsche Bank says several corporate clients have started repaying credit. Photo: Alex Kraus/Bloomberg

Bloomberg

Pay back: Deutsche Bank says several corporate clients have started repaying credit. Photo: Alex Kraus/Bloomberg

THE corporate equivalent of panic-buying toilet paper is coming to an end.

European companies have largely stopped maxing out their credit lines after unprecedented help from governments and central banks calmed the coronavirus panic.

Executives at Deutsche Bank, HSBC Holdings and Standard Chartered say some corporate clients are starting to repay that credit, increasingly confident they will be able to tap public markets if needed.

The rapid drawdowns in March put risk officers at many European banks on alert as they exacerbated a depletion of capital cushions.

As that trend ebbs, it removes one headache from the banks as they stare into the worst recession in almost a century.

"You had this situation where companies were saying 'crikey - I'd rather have the cash in the bank'," rather than just a promise that credit is available, Andy Halford, chief financial officer of Standard Chartered, said in an interview.

"After three to four weeks, people realised this wasn't a banking crisis, and that sitting there with cash without great purpose wasn't a great move."

As the pandemic spread across Europe in March and governments imposed lockdowns, companies including EasyJet, Rexel, Crest Nicholson Holdings and Loxam announced they had largely - and sometimes, completely - exhausted their credit lines.

Several said they didn't really need the banks' money, and tapped credit as a precautionary measure. Standard Chartered said in a presentation on Wednesday that as drawdowns peaked in March, about $5bn (€4.6bn) of loan facilities were used by clients. But in the week of April 14 to 20, a net $200m was repaid.

By the end of March, the situation reached a turning point, HSBC CEO Noel Quinn said.

"In the early days of the crisis, the capital markets were not open, or open to the degree that they are now," Mr Quinn said on a conference call as the bank reported earnings this week.

"As the capital market started to reopen and liquidity was available in those markets, we have seen a number of clients addressing their liquidity requirements."

In Germany, Deutsche Bank saw €18bn drawn by clients in the first quarter.

By the end of April, the lender was observing the same trends as its British counterparts.

"We have seen drawdowns slow and repayments pick up," said Stefan Hoops, head of corporate banking.

Bloomberg

Irish Independent