(Bloomberg) -- Investment banks in Europe have been handing out risky credit at a rapid clip this year despite efforts by the European Central Bank to rein in the practice.
The total volume of leveraged finance in the region hit €204 billion ($226 billion) through August, more than twice the amount in the same period last year, data compiled by Bloomberg shows. That’s the second-highest level in more than a decade.
The numbers underscore the continued popularity of leveraged lending, the lucrative but risky business of extending credit to heavily indebted companies. The ECB has been conducting a granular assessment of those operations at a dozen major banks and may demand that they set aside more money to account for those risks, Bloomberg has reported.
JPMorgan Chase & Co is the leading bank for European leveraged finance, followed by Goldman Sachs Group Inc, BNP Paribas SA and Deutsche Bank AG, according to the data. JPMorgan’s EU unit as well as BNP Paribas and Deutsche Bank are included in the ECB probe, people familiar with the matter have said previously.
The ECB said last month its investigation is of “fundamental importance” given the state of the market. It also warned that some lenders will have to change their practices.
The strong growth in leveraged loans “bodes well” for the revenue outlook of BNP Paribas and Deutsche Bank, Bloomberg Intelligence analyst Philip Richards said in a note last week.
Richards also noted potential downsides, pointing to “the risk of higher credit impairments” if the economy were to slow. In addition, “raised regulatory scrutiny could lead to higher capital requirements being imposed on European lenders,” he said.
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