Who are the preferred financing partners of Swiss municipalities? And why are online platforms also becoming increasingly interesting for investors? In the second part of our blog series, we take a closer look at these aspects and let economist Prof. Christoph Lengwiler have his say.
Since 2003, the Lucerne School of Business has regularly examined the financing structure of medium-sized municipalities in Switzerland – most recently in 2019. In the study published this summer, it concludes that the market has changed significantly in recent years.
Especially with regard to financing partners, there is movement. With 51.3 percent of the recorded credit volume, banks are still the most important partner of the municipalities, but the market share is almost 11 percent lower than in the 2016 study. On the other hand, pension funds seem to be becoming an increasingly attractive financing partner: They are recording an increase of a good 10 percent. Almost half of the credit volume is thus no longer financed by banks.
But the weighting has also shifted within the banks. PostFinance and the Raiffeisen banks have maintained their position in the market compared to the previous study, but the cantonal banks and the other banks (UBS, CS, etc.) recorded lower market shares at the end of 2019. The same applies to insurance companies, which have almost completely withdrawn from the market in recent years. Obviously, municipal financing, although highly rated in terms of creditworthiness, is not attractive enough due to the low margins.
Mediation platforms are used more often
And what about alternatives to the classic loan brokerage via the house bank advisor? According to the study, more than half of the surveyed municipalities (60%) now work with service providers such as loan brokerage platforms or brokers. In 2016, it was only just over 41 per cent. But the platforms are not only attractive for borrowers, says study leader Prof. Dr. Christoph Lengwiler, but also for potential investors.
Quality before quantity
A certain consistency seems to be important to the municipal finance directors: The number of brokers and platforms used by the municipalities decreased compared to the last study. This is evidence of a concentration on certain service providers. In the ranking of which service providers the municipalities use for their loan requests, Loanboox takes second place with 33% after only three years in the market.
Details about the study and the participants
In 2003, the Institute of Financial Services Zug (IFZ) at the Lucerne School of Business, under the direction of Prof. Dr. Christoph Lengwiler, conducted its first survey of the financing market for medium-sized municipalities in Switzerland. The study has been conducted six times since then – most recently at the end of 2019. The focus is on municipalities with 4,000 to 30,000 inhabitants. In the most recent study, a total of 470 municipalities were requested and 238 provided their data – this corresponds to just under eleven percent of all municipalities in Switzerland. With a participation rate of 50.6%, the survey can be considered largely representative. For the first time, Western Switzerland was also included, which is reflected in the credit volume with an increase of almost 30% compared to the 2016 study.
Read also part 1 of the blog series on municipal financing in Switzerland.