May 11, 2018 / 4:03 PM / 9 days ago

France sets limit for bank exposure to corporate debt

PARIS (Reuters) - France’s six biggest banks must limit their exposure to highly indebted French companies under a new rule effective from July, the country’s financial stability council said on Friday.

A small-particle haze hangs above the skyline, with the Eiffel Tower that is seen in the distance, in Paris, France, December 29, 2016. REUTERS/Pascal Rossignol

The High Council for Financial Stability, headed by the finance minister and which also includes the central bank governor, has been concerned about surging corporate debt levels.

In December, it announced banks would have to cap their exposure to the most indebted companies at five percent of their capital, once details had been hammered out.

On Friday, the council said BNP Paribas (BNPP.PA), Societe Generale (SOGN.PA), Credit Agricole (CAGR.PA), Credit Mutuel, BPCE [BPCE.UL] and La Banque Postale [LAPSTE.UL] would be subject to the new limit from July for two years, which could then be renewed.

It added that other EU countries were expected to impose the limit on French companies, a move aimed at preventing firms from simply turning to other European banks for credit.

French corporate debt has hit record levels as big firms with easy access to bond markets have binged on cheap credit to finance investments and foreign takeovers.

Central bank governor Francois Villeroy de Galhau has repeatedly warned that if borrowing did not slow the council would consider additional credit curbs at its next meeting in June.

The central bank said on Friday its latest data showed growth in corporate borrowing picked up in March to 5.2 percent over one year from 5.0 percent in February.

Bond issuance in particular surged 7.3 percent as pharmaceuticals group Sanofi and insurer AXA tapped markets to finance acquisitions.

    Reporting by Leigh Thomas; Editing by Mark Potter

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