Competition in the Project Finance Loan Industry in Europe

Abstract

The market for project finance loans has a special feature: banks do not only compete individually but also through coalitions or “syndicates”. Traditional concentration indicators summarise industry structure based on individual market shares but they fail to capture the dynamics of competition between coalitions. For the same level of concentration, competition will be fiercer if there exist different competing coalitions than if all loans are granted by a single syndicate of banks. We develop a metric of “similarity” between syndicates to assess how similar syndicate composition is in the European project finance loan industry. We find that syndicates are more similar within Spain and Portugal than within Germany and the UK, which might indicate a lower degree of competition in the former. We also find that syndicates are significantly more similar within countries than between countries, which might reflect the lack of market integration and the existence of home bias in the European project finance loan industry.