European Banks See Importance of Supply Chain Finance, Study Finds
By: Demica April 08, 2014
The importance and potential of supply chain finance as a line of business is increasingly recognised by the European banking community, according to the latest study by Demica, a technology specialist for working capital solutions.
The study, which examined job titles at the 50 largest banks in Europe, identified that close to 45 percent of top European banks have already created SCF-specific roles/job titles. Close to one third of the sampled banks have SCF-specific roles with directorial status. Nearly one fifth of these banks have sales functions specifically related to SCF and 16 percent of them have SCF-specific product managers. These figures can be seen as a broad indication on the growing level of significance banks allocate to SCF.
Following the financial crisis, this supplier financing facility has been exhibiting accelerated growth rates, as corporate buyers have become increasingly concerned about providing much-needed liquidity to their smaller-sized suppliers as well as improving their own working capital efficiency. A mounting number of banks are now increasingly regarding SCF as a distinct and full-fledged product in its own right. As a result, banks are creating more strategic roles solely dedicated to the promotion of SCF business within client organisations.
The study also highlights numerous driving forces behind banks’ intensifying efforts to develop SCF. As trade business increasingly takes place via open accounts instead of letters of credit, banks have to be able to offer product solutions that not only accommodate the evolving trading dynamics but also facilitate trade development. Due to its short tenure, self-liquidity nature and low cost of opportunity, SCF is an appealing business for banks, particularly in a post-crisis regulatory landscape. Driven by the strong appetite to use their balance sheet to support short-term commercial trade-related transactions, banks are now jockeying to gain SCF businesses.