BANKS are at threat of being isolated from the financial system, as companies increasingly turn to the bond markets to borrow money, Ernst & Young has warned.
The professional services firm said the banking system is being “disintermediated” from the financial system after the growth of the corporate bond market to finance firms over the past year.
This year is set to be the first year that bond issuances have risen above bank lending.
E&Y head of financial services Andy Baldwin said: “It is yet to be seen whether this will be a short-term shift due to current crisis, or whether it becomes more of a long-term trend and the market for investors dealing directly with corporates develops in a similar way to what we have seen in the US.”
Companies have increasingly sought refuge from the lack of lending by banks by tapping the bond market, where they can lend at low rates due to the rise in demand for bonds from investors.