Loan syndication and its impact on competition in credit markets

July 2019

On 5 April 2019 the EU Commission published a final report on “EU loan syndication and its impact on competition in credit markets” (the “Report”). This study was undertaken by external consultants for DG Competition of the European Commission with the aim of undertaking an assessment of the loan syndication market in terms of its effectiveness and functioning, and to identify potential competition concerns.

Debt is a critical source of finance for the European economy with the syndicated loan market a major contributor of large-scale debt finance where several lenders come together to provide loans to a borrower in a single loan facility agreement. Syndicated lending in Europe offers an alternative form of debt financing to bilateral lending and the bond market.

The Report focuses primarily on a sample of six Member States, namely France, Germany, the Netherlands, Poland, Spain and the United Kingdom, which include the most significant jurisdictions in terms of the location of borrowers, lenders and investors. Syndicated loans are a significant source of capital in Europe, with about €720 billion raised in 2017 across all Europe. Overall, the six countries surveyed account for about three-quarters of the following specific segments of the European syndicated loan market: Leveraged Buy-Outs (LBOs), Project Finance and Infrastructure Finance.

The Report sets out the researchers’ findings describing those areas where they have identified potential competition law issues, and also discussing the evidence for particular safeguards present in syndicated lending that may limit market participants experiencing these risks in practice. The most important safeguards identified by the Report to ensure competitive outcomes in the loan syndication process include: Banks’ duty of care to clients; Avoidance of unwarranted information exchange; and Promotion of unbundled price competition. The Report recommends that syndicates should limit the cross-sale of ancillary services in order to avoid the risk of impairing competitive conditions in neighbouring markets to that of syndicated loans, and that this should be kept outside the loan syndication process when these services are not directly linked to the loan.

Perhaps not surprisingly, the Report also identifies the slowness and expense of Know Your Customer (KYC) rules applied by lenders and settlement processes as an area of inefficiency in the market and suggests that there may be a coordination problem amongst market participants which could also be an area for future regulatory attention.

For the full text of the Report refer to:

Go back to insights