1.3. Reduce contract duration/loan maturities

Most banks now argue that the very long tenors, i.e. over 25 years, observed in the PPP market before the crisis, were probably unsustainable and mostly driven by pressures on public sector affordability, evaluation criteria with high discount rates favouring long dated payments and acute bank-bond competition. There appears to be a consensus that shorter term loans, i.e. in the 15-18 years range, are much more "bankable" and that longer tenors should be the preserve of capital markets.

While nothing prevents banks from bidding shorter maturities, even for long contracts, such offers are likely to be non-competitive. A possible response would be shorter PPP contracts.

However, banks are also keen to ensure that sufficiently long PPP contracts are maintained to allow them the opportunity to refinance in secondary markets.

The main driver of the PPP contract duration should remain technical (life-cycle and obsolescence considerations) rather than financial. Against this criterion, long contracts for major infrastructure investments would be justified. However, it is likely that very long term bank lending will remain a rarity, even after the markets recover.