The importance and potential of Supply Chain Finance (SCF) as a line of business is increasingly recognised by the European banking community, according to a study by Demica, a technology specialist for working capital solutions.
The study, which examined job titles at the top 50 largest banks in Europe, identified that close to 45% of top European banks have already created SCF-specific roles or 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% 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 2008-09 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 growing 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 (L/Cs), 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.
“With the heightened interest in SCF in recent years, this credit facility has become an increasingly significant business avenue for banks,” said Phillip Kerle, chief executive officer (CEO) of Demica. “Especially in a post-crisis world where a return to cheap liquidity is unlikely in view of the stringent regulatory requirements, the value of SCF will continue to grow for buyers and suppliers alike.
“Financial institutions (FIs) recognising the business potential behind SCF are now enhancing their commitment to developing this business area. Given that SCF is still establishing itself as a universal and standard banking offering, those that manage to gain a foothold in this arena can seek to benefit from the considerable potential that is yet to be exploited.
“By helping client organisations integrate physical supply chain processes with the financial supply chain, banks will not only seize new business opportunities, but also help companies transform their supply chains into a true competitive advantage.”
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