GSCFF finds misuse of supply chain finance worrying but not widespread
The Global Supply Chain Finance Forum (GSCFF) – comprising BAFT (The Bankers Association for Finance and Trade), FCI, the International Chamber of Commerce (ICC), the International Trade & Forfaiting Association (ITFA) and the Euro Banking Association (EBA) – has released a paper in response to growing concerns regarding the use of supply chain finance (SCF) and, in particular, payables finance programmes. The report, 'Ensuring Payables Finance Remains a Force for Good', aims to address criticisms across three key areas: the potential adverse impact on suppliers, issues relating to financial reporting and transparency, and overall programme risk.
“When used in an appropriate manner, payables finance programmes enable buyers and suppliers to optimise their working capital and strengthen their relationships with each other," commented Christian Hausherr, chair of the GSCFF, as well as European Product head of Payables Finance, Trade Finance & Supply Chain Finance at Deutsche Bank. "However, reports relating to the misuse of payables finance programmes, notably around suppliers being forced into accepting unfavourable terms, are extremely worrying. As such the GSCFF has taken the initiative to address these concerns head-on, to promote understanding of the technique and its use.”
The report addresses topics ranging from the alleged “bullying” of small and medium-sized enterprises (SMEs) to join payables finance programmes, to issues around financial disclosure, to impact of COVID-19 on the use of the technique. Key conclusions of the report include:
- SMEs should never be “bullied” to join such programmes. Reports of such practices are highly concerning and taken for the GSCFF. They also ignore the balance that can be achieved through well-structured payables finance programmes, which not only help buyers and therefore assure the health of the overall supply chain, but also provide prompt access to funds for suppliers on an affordable basis, addressing the systemic SME cash flow challenge.
- Suppliers should feel that there is absolutely no obligation to participate. If they are not in urgent need of cash, they can opt to receive payment in full on the original due date. The report strongly encourages finance providers to follow accepted industry practice in considering extensions of terms.
- Liabilities rising from SCF programmes do not create additional financial risk above and beyond those that arise from trade between a buyer and a seller. Negative outcomes can be avoided by implementing strong credit analysis of a corporate’s balance sheet before engaging in a SCF programme.
- Transparency of financial reporting relating to the usage of SCF programmes is desirable but requires developing parameters for disclosure in corporates’ financial statements in coordination with accounting standards bodies.
- COVID-19 may have resulted in increased use of SCF, yet this does not create increased risk within the system as it would be counter-productive and inappropriate for banks to swiftly withdraw credit lines.
The report follows work from the GSCFF on promoting strong industry standards and agreed definitions, including the release of the Standard Definitions for Techniques of Supply Chain Finance and Payables Finance - How It Helps Global Supply Chains.
New lenders accredited to British Business Bank COVID-19 loan schemes
The British Business Bank has announced that it has approved Conister for accreditation to the Bounce Back Loan Scheme (BBLS), and Bank of Ireland (UK) for accreditation under the Coronavirus Large Business Interruption Loan Scheme (CLBILS). Conister will join the other 26 BBLS lenders who have been accredited since the scheme opened.
The new CLBILS lenders will be able to provide finance to midsized and larger UK businesses with a group turnover of more than £45m (the upper limit for the existing smaller-business focused CBILS) that are suffering disruption to their cashflow due to lost or deferred revenues during the Covid-19 outbreak.
Following their approval, the lenders will put in place the operations required to start lending under the schemes and will confirm the dates from which they will be ready to start receiving applications from businesses across the UK.
The Bank continues to review applications from a wide range of lender types – from PRA-regulated banks, to platform lenders, debt funds, invoice finance lenders, asset finance lenders and responsible finance lenders.
Germany’s inaugural green bond incoming
Over the past six months, Germany has developed its first Green Bond Framework, joining several other countries such as France, Belgium and the Netherlands in the green bond market. With this week's publication of the Framework, Germany, acting via the German Finance Agency, is now formally in the position to issue Green German Federal Securities, setting the scene for its ambition to establish them as the interest rate benchmark for the euro green finance market within a short period of time.
In practice, Germany plans to set up a green yield curve for the euro area, matching the maturities as on the conventional curve. Market participants with different investment horizons will have at their disposal a green, transparent investment opportunity with first-class credit quality. For that purpose, a unique issuance approach has been adopted: each new Green German Federal security will always be issued alongside an existing, conventional German Federal security, with exactly the same characteristics, i.e. the same maturity and coupons - creating de facto “twin German Federal securities”.
The issuance volume, however, will be different, with the conventional German Federal security being placed at the volumes the German Finance Agency establishes to ensure level of liquidity the market expects. To ensure secondary market tradability comparable to conventional German Federal securities, the German Finance Agency will strongly support the liquidity of the green twins through its activities in the secondary market, at all times ensuring that an investor in the Green twin will be able to liquidate its position for cash in the same manner as with the conventional twin. The secondary market activities of the German Finance Agency enable members of the Bund Issues Auction Group to conduct combined sale-and-purchase transactions (switch transactions) or single sale or purchase transactions directly with the issuer on a daily basis.
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