Demica research shows a 65% annual increase in live SCF programmes in Europe.

London, 29th May 2008

According to the latest research from working capital solutions specialist Demica, over 90% of major international banks are now offering their corporate customers supply chain financing (SCF) solutions: nearly twice as many as last year. In parallel, the research points to surging corporate demand for collaborative financing tools, with a 65% increase in live SCF programmes over the last twelve months and triple the number of firms actively investigating their options in this regard. Moreover, European corporates believe that SCF will grow more strongly over the next two years than lines of credit from their relationship banks - the inverse ranking to last year’s prediction and no doubt a reflection of the current credit crisis. The vast majority of banks surveyed in Demica’s research believe that supplier finance and vendor finance provides “an efficient deployment of scarcer credit in the current climate” for corporate customers, corroborating many commentators’ view that the credit crisis is driving growth in Supply Chain Finance SCF programmes. The banking community also stressed that Supply Chain Finance SCF services offer them a valuable opportunity to consolidate and extend existing customer relationships, in addition to attractive margins. This research updates and extends the first report on the European Supply Chain Finance SCF market published by Demica in early 2007. This time last year, Demica observed 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, but it seems that banks remain willing to fund Supply Chain Finance SCF programmes. Indeed, nearly two-thirds of banks stated that they would continue to fund their programmes through asset-backed commercial paper conduits, perhaps because of the suitability of a highly rated, diversified pool of receivables as an asset in the credit crisis. Phillip Kerle, Chief Executive Officer, Demica, comments: “Supply chain financing has been much talked about over previous years but it seems that demand has finally caught up with supply. Although Supply Chain Finance SCF is still in its infancy, banks in our research were emphatic in their view that Supply Chain Finance 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. “We noted that corporate respondents cited operational issues as hindering take-up of Supply Chain Finance SCF. In fact, sophisticated solutions are now available to eliminate the need for major technology integration. Banks also agreed that disruption to suppliers’ and buyers’ processes and IT systems may be a perceived obstacle, but it is largely one that, in reality, no longer exists.” The key findings of Demica’s research include:

• 93% of the top 50 global banks now offer Supply Chain Finance SCF services to corporate customers (compared to 50% last year); the remaining 7% are actively planning to do so.
• Banks believe there has been a 65% increase in the volume of finance being funded through Supply Chain Finance SCF programmes over the last year.
• Corroborating this, 14% of corporations now have a live Supply Chain Finance SCF programme in place, compared to 9% a year ago. 24% are now actively investigating Supply Chain Finance SCF options, compared to only 9% last year.
• Corporates believe that Supply Chain Finance SCF will grow more strongly over the next two years than lines of credit from a relationship bank - the inverse ranking to last year’s research.
• 64% of top banks said that they would continue to fund their Supply Chain Finance SCF programmes through their ABCP conduits and 60% also said that illiquidity in other parts of the credit derivatives market had not altered their plans.
• 65% of large firms are looking for sustainable ways of extending their payment terms with suppliers in 2008 and beyond.
• 93% of banks agree that Supply Chain Financing SCF provides “an efficient deployment of scarcer credit in the current credit climate” for corporate customers.
• 80% of banks felt that Supply Chain Financing SCF products were important to their commercial banking service differentiation, and elaborating on this, they highlighted the opportunity of significantly extending their reach to cover customers’ “end-to-end” supply chain processes, including such “upstream” processes as e-invoicing.
• In terms of the practical challenges of setting up a successful Supply Chain Financing SCF programme, there seems to be a disjunct between top banks and their corporate customers. Banks felt the main obstacles for large corporates in setting up and Supply Chain Finance SCF programme are (1) the perceived need to change internal processes and (2) organisational issues. However, the corporates themselves felt the main challenges are (1) bringing suppliers on board and (2) difficulties with technology integration.
• When asked to name the top four industry sectors that are most able to benefit from the working capital released by Supply Chain Finance SCF programmes, banks cited: retail, automotive, manufacturing and electronics.
•  To receive a copy of Demica’s report “Demand and Supply”, covering supply chain financing, vendor finance, supplier finance and payables financing, please contact: Marc Gossage or Paul Lindsell, Lindsell Marketing, + 44 (0) 207 087 8050 This e-mail address is being protected from spambots. You need JavaScript enabled to view it

About Demica

Demica is a market leading provider of specialised working capital solutions providing consulting, advisory and technology services to a diverse range of multi-national clients. Demica works with the world's leading investment banks, private equity sponsors and global corporations to implement innovative solutions to their securitisation and supply chain finance requirements.

Demica’s technology is used around the globe running in excess of €10.5 billion of invoice-based transactions on its Citadel® platform. Demica is a wholly owned subsidiary of the J.M. Huber Corporation, one of the largest privately held companies in the United States. Demica has offices in London and Tokyo.