The full report can be found here.

Press release available in French, German, Italian and Spanish. 

AFME, in collaboration with 10 international organisations representing global and European capital markets stakeholders, has today published the second edition of its annual report tracking the progress to date of the European Commission’s flagship Capital Markets Union (CMU) project through 8 Key Performance Indicators (KPIs).

The report entitled, ‘Capital Markets Union Key Performance Indicators’ includes a country-by-country comparison of individual EU Member State progress against the CMU’s objectives. This year’s report also includes a new indicator measuring how well EU28 countries are enabling investment in FinTech.

Simon Lewis, Chief Executive of AFME, said: “As the EU begins a new political cycle, there is an increasing focus on the need for the European Commission to further develop the Capital Markets Union. While some of our report’s indicators show a positive trajectory since last year’s results, such as Europe’s global leadership in sustainable finance, it is clear that there is still much work to be done at European and national levels, particularly on making Europe’s capital markets more competitive.”

The 8 KPIs assess progress in the following CMU policy priority areas:

1. Market Finance indicator: how easy it is for companies to enter & raise capital on public markets;
2. Household market investment indicator: to what extent retail investment is being fostered;
3. Loan transfer indicator: to what extent banking capacity is supporting the wider economy;
4. FinTech indicator: to what extent national countries are enabling investment in FinTech;
5. Sustainable Finance indicator: to what extent long-term investments in infrastructure and sustainable investment are being made;
6. Pre-IPO Risk Capital indicator: how well start-ups and non-listed companies are able to access finance for innovation;
7. Cross-border finance indicator: to what extent cross-border investment is being facilitated;
8. Market depth indicator: measuring the depth of EU capital markets.

Among the report’s key findings:

• Europe strengthened its global leadership in sustainable finance

Issuance of green, social and dual-purpose bonds (i.e. bonds that meet the definition of both green and social) increased 16% in the EU during 2018 to €69bn, an increase of €9bn compared to 2017.

• EU 27 lags behind on FinTech funding

EU27 FinTech companies have only benefited from $7.2bn in investments (venture capital, seed, angel and private equity) since 2009, compared with $120bn in the US, $20.3bn in the UK and $23.8bn in China. The UK lead is driven by its suitable regulatory environment and a deep local funding environment for new companies.

• Europe’s reliance on bank lending has increased

European companies continue to over rely on bank lending, with 88% of their new funding in 2018 coming from banks and only 12% from capital markets – a decline from 14% on average in 2013-2017.    

• The availability of pools of capital in Europe decreased in 2018

Owing to a temporary deterioration in asset prices, the value of household savings invested in capital markets instruments in the EU (i.e. equity shares, investment fund shares, bonds, insurance and pensions) decreased from 118% of GDP on average in 2017 to 113% of GDP in 2018.

• Europe continues to increase amount of risk capital available for SMEs to finance their growth

SMEs experienced an annual increase of 8% in investment from private equity growth funds, 12% from venture capital, 24% in equity crowdfunding, 8% in business angel financing and 5% in new SME bank lending. Pre-IPO risk capital represented 2.64% of the total annual flow of SME financing (including bank lending) compared to 2.55% in 2017 and 1.4% in 2013.

• The EU capital markets ecosystem deteriorated in 2018

This was predominantly due to the decline in issuance of market instruments such as equity shares and bonds and the deterioration in the total value of household financial savings following the decline in asset prices at the end of 2018 (as earlier noted). However, the CEE region saw an encouraging increase in primary issuance of equity shares and bonds.

• More NPLs were converted into capital markets instruments

Loan portfolio disposals by EU banks increased 32% during 2018 to €182 bn— the largest annual amount traded on record. This was driven by another year of considerable growth in the non-performing segment of the market as banks in EU countries accelerated their disposal of unpaid loans (or NPLs) encouraged by regulatory developments.

EU 28 country performance

A comparison of the 28 EU Member States and their individual performance against each indicator was conducted – the results can be found on page 10 of the report. Among the key findings:

• The UK is leading the EU with regards to the provision of new bond or equity financing for non-financial corporations (NFCs) with 26% of new funding derived from markets. The Netherlands and France follow closely with market instruments providing 18% of total new finance in both jurisdictions. Together the UK, France and the Netherlands account for 49% of total new funding for NFCs raised from markets in 2018. Only three countries, Croatia, Cyprus and Slovenia did not tap the market for NFC funding at all in 2018.
• The Netherlands, the UK and Denmark lead among EU countries in the amount of household savings invested in market instruments, due to greater private pension coverage. All countries except for Cyprus and Greece increased in 2018 the amount of savings in the form of cash and deposits.
• Ireland, Italy, Portugal, Cyprus and Spain (high-NPL countries) are in the top ten EU nations in the loan transfer index in 2018, as banks continue to dispose of distressed assets through markets.
• The UK leads by a large margin in the EU in its capacity to facilitate FinTech innovation due to the regulatory environment and deep funding pools. Sweden, Luxembourg and Lithuania follow the UK among the EU countries with the most suitable FinTech ecosystems.
• Belgium, the Netherlands and Sweden are the leading EU nations in sustainable finance with over 7% of bonds issued in 2018 classified as sustainable. 21% of Lithuania’s bonds issued in 2018 were labelled sustainable, which is just over double the percentage of 2017- however this reflects three bonds issued during 2018 (and one in 2017).
• Ireland leads by availability of risk capital for SMEs as a percentage of total SME finance, with a prominent participation of venture capital investment and private equity growth funds. Estonia ranks second in the EU due to significant business angel investment as a percentage of risk capital and bank lending.
• Luxembourg, the UK and Estonia rank as the most interconnected capital markets with the rest of the EU. Luxembourg’s lead is due to its fund and bond issues held within the EU.
• The UK, Luxembourg and Cyprus are the most globally interconnected European capital markets. The UK has a prominent participation at intermediating global FX and interest rate derivative transactions. In Cyprus, global connectivity is driven by the large portion of Cypriot equity and fund shares held outside the EU.
• Estonia and the Czech Republic are the deepest markets in the CEE region. In 2018, Estonia issued 10% of high yield bonds and 6% of investment grade bonds in CEE, while representing 2% of the regions GDP.

The report was authored by AFME with the support of the Climate Bonds Initiative (CBI), as well as European trade associations representing: business angels (BAE, EBAN), fund and asset management (ACC, EFAMA), crowdfunding (ECN), retail and institutional investors (European Investors), stock exchanges (FESE), venture capital and private equity (Invest Europe), and pension funds (Pensions Europe).

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