Anti-trust pressure grows on banks involved in syndicated lending in CEE

CEE, Austria

Competition authorities in CEE are taking a keener interest in banks that provide syndicated lending following a European Commission report last year into loan syndication and its impact on competition in credit markets. The EU carried out a fact-finding study of the syndicated lending market on the back of antitrust cases that saw multimillion fines handed down to banks in the UK, Spain and Turkey.

One of the key issues that has sparked the increased attention is that the CEE financial sector consists of concentrated, high-income markets. In addition, high barriers to market-entry create a less transparent environment, and employee movement between competitors is highly fluid. These factors combine to encourage lenders to inadvertently engage in activities that qualify as either abusing a dominant position or reaching an anti-competitive agreement.

The EU report identified the following potential risk areas:

  • market soundings on the formation of the syndicate

  • coordinated negotiations from post-mandate to agreement

  • acting as both debt adviser and syndicate lender

  • the coordination and tying of ancillary services to the mandate

So how should banks mitigate these risks?

In addition to common and prudent steps such as NDAs, the safeguards lenders should have in place include:

  • ensuring staff are trained to identify risk areas

  • ensuring separation between origination and syndication functions

  • making sure at the initial stage that each bank competes individually for a place on the mandate

  • paying attention to transparency and ensuring everything is clear to the customer and confirmed in written documentation

  • limiting discussions with other syndicate members to issues concerning the mandate

  • keeping ancillary services outside the syndication process

So what does this increased antitrust pressure mean for banks in the short term?

The most significant implications are that banks must take more care in hazardous areas such as risk assessment. Banks need to be mindful of potential antitrust issues throughout the entire syndication process. By utilising these preventive actions and implementing internal safeguard measures, banks can also identify and avoid the danger zones, such as a lack of transparency, an appearance of collusion, overly close cooperation with competing banks, and any suggestion that they might be abusing a dominant position. By taking these steps, lenders can minimise any risk of drawing the competition authorities’ attention.

If you would like to find out more about this important issue, feel free to contact our experts Raško Radovanović and Szabolcs Szendro, who have recently participated in a webinar on this topic and will gladly share the recording with you.