Panel: Financing model for infrastructure investments – can traditional banks stay competitive?
As Europe launched its long awaited quantitative easing programme, the fundamentals of the overall financial sector have been stretched as investors and financiers are running difficulties in finding adequate yields on their investments. Simultaneously, in 2014 EU announced its EUR 315 billion investment plan with the aim of reviving European economic growth, creating jobs primarily through infrastructure investment. According to the plan it is expected that the vast majority of capital will be sourced from the private sector – it has already been noted that institutional investors, such as pension funds, insurance companies and sovereign wealth funds have been expressing their interest and sourcing significant amount of capital for infrastructure assets.
However, having in mind the aforementioned by examining the regional environment we note the majority of up to date financing in the infrastructure sector has been done by the government and through the traditional bank financings, without heavier involvement of the private investors. Undoubtedly one of the reasons for the chosen financing model and lack of private sector involvement lies in the fact that the region is facing multiple internal challenges, such as complexity of the legal framework, process transparency, lack of political commitment and general public misconception regarding the benefits of PPP’s or any sort of private sector involvement.
We can therefore question whether the current challenging environment benefits the banking sector? On the other hand, given that banks face stretched balance sheets and the government itself has limited funds for further infrastructure investment, private sector involvement will become a necessity for securing regional long term competitiveness. Thus, given the current environment of readily available and fairly priced capital raises the pivotal question – who is the most competitive financier for infrastructure projects and can the traditional banking sector stay competitive in providing financing in our newly developed environment?
