Banks Will Continue to Use ABCP Conduits, Demica Study Says

London-based working capital management specialist Demica has released new research on the supply chain finance (SCF), citing changes over the past year and current banking attitudes toward them as a service offering.

According to the release, 93% of  major international banks now offer SCF services to customers, up from last year’s 50%, and the remaining 7% plan to do so. 

Nearly two-thirds of banks said they would continue to fund their programs through ABCP conduits, perhaps because of the suitability of a highly rated, diversified pool of receivables as an asset in the credit crisis.

The research also reveals the growing corporate demand for collaborative financing tools, reporting a 65% increase in live SCF programs over the last year and tripled number of firms actively investigating related options.

Corporates believe that SCF will grow more strongly over the next two years than lines of credit from their relationship banks, which is the inverse ranking to last year’s prediction and seemingly a reflection of the current credit crisis.

Almost all of banks surveyed agreed that SCF provides “an efficient deployment of scarcer credit in the current climate” for corporate customers, confirming many commentators’ views that the credit crisis is driving the increase in SCF programs. 

SCF services also offer a valuable opportunity to consolidate and extend existing customer relationships and attractive margins, said the banking community.

This research report on European SCF extends Demica’s first published in 2007, which noted the tension building in many European supply chains as buyers continued to exert unsustainable pressure on suppliers to extend payment terms.  Since then, the international credit crunch has compounded financial woes, though banks are still funding SCF programs.

Demica CEO Phillip Kerle said, “banks in our research were emphatic in their view that SCF is a strong and rapidly growing market, and one which will provide an alternative source of funding for those corporates facing difficulties obtaining traditional bank credit.”