That is, lending to companies who have high levels of debt.8  Chart 16 The flow of gross issuance of leveraged lending to UK companies has declined from post-crisis highs and there is a tail of highly indebted firms Annual flow £ 60  % of total debt 40 Net debt to EBITDA >4x 35  50  30 40 25 30  20 15  20  10 10 5 0 01  03  05  07  09  11  13  15  17  19  0 00  02  04  06  08  10  12  14  16  18  Source: S&P Global Market Intelligence. Notes: Gross issuance of leveraged loans by UK companies on a 12 month rolling basis. Net debt to EBITDA ratios of the top 500 largest non-financial corporates by revenue outside of real estate and oil & gas weighted by debt. That rapid growth has now eased right off. But it has left a legacy on the balance sheets of some companies and on the balance sheets of those who have lent to them. The legacy on the balance sheets of companies is that more than a third of corporate debt is now in companies that have debt more than four times their cash flow (Chart 16). That can raise the underlying level of economic vulnerability. As we saw earlier, high-debt corporates are likely to cut back more sharply in downturns.
Assuming that developments in Swedbank’s and SEB’s other markets continue to be relatively good, however, the bank groups should be able to cover most of the losses from the Baltic region with the earnings from the remainder of their operations. Swedbank and SEB have subsidiaries in the Baltic countries, while Nordea has a branch. According to EU regulations, the authorities in the country where subsidiaries are located have responsibility for their supervision, while the home country authorities have the responsibility for branches and for the bank group as a whole. Around 80 per cent, equivalent to SEK 320 billion, of the Swedish banks’ lending to the Baltic countries is in euro. These euro are lent almost exclusively in the international loan markets by the parent bank in Sweden. BIS Review 11/2010  1  The Baltic economies developed rapidly after these countries gained their independence, although there have been some setbacks. This development was supported by extensive inflows of capital from abroad, particularly after EU membership in 2004. Much of the money came from neighbouring countries such as Finland and Sweden. The average standard of living for the populations in the Baltic countries increased rapidly from 41 per cent of the EU average in the year 2000 to 62 per cent in the year 2008.