Banks Commit to Supply Chain Finance as Line of Business

Following the financial crisis, corporate buyers became concerned about providing liquidity to their smaller suppliers

LondonApril 7, 2014—The importance and potential of supply chain finance (SCF) as a line of business is increasingly recognized by the European banking community, reveals the latest 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 percent of top European banks 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 exhibited accelerated growth rates, as corporate buyers became 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 organizations.

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.  

Phillip Kerle, CEO of Demica, commented, “With the heightened interest in SCF in recent years, this credit facility has become an increasingly significant business avenue for banks. 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 recognizing 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 organizations 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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