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Preliminary statistics released late Tuesday by Factors Chain International (FCI) document a stark decline in factoring volumes in key North Asian markets last year, led by a negative 25% slump in China. Worldwide volumes are estimated at 2.3 billion euros (US$2.5 billion), down marginally from 2015.
“Factoring statistics indicate that the industry has overall held its pace with many markets showing significant continued growth,” the organization said. “These advances have, however, been offset by a continued reduction of volume from China, where the downturn has also affected international figures of trade and counterparty countries such as the USA.”
Take-up of factoring solutions, which allows suppliers to sell receivables to banks, and finance companies to realise faster collections, was down 10% in Taiwan and down 9% in Japan in 2016. On the other hand, Southeast Asian markets, as well as Hong Kong, recorded growing volumes.
FCI members account for 82% of cross-border factoring activity globally and 61% of total volumes, which includes domestic factoring.
Apart from lower demand and stricter capital controls in China that have had a knock-on effect on financing cross-border trade, lower balance sheet commitments by some banks in the region have contributed to the fall in factoring volumes.
Speaking at a roundtable event hosted by The Asset earlier this month in Singapore, corporate executives highlighted a key stumbling block to setting up discount receivables programmes and more sophisticated supply chain finance solutions.
“It all comes down to who is taking the risk and whether your bank is willing to take the risk of that supplier,” explains Gopul Shah, director, corporate treasury and structured trade finance at Golden Agri-Resources. “We now have a discount receivables programme with a local bank and we find it easier than working with global banks that are subject to much stricter KYC and regulations.”
The FCI, meanwhile, is confident that factoring volumes will stage a comeback across Asia this year. “Cross border two-factor volumes in the first 2 months of 2017 seem to indicate that the most challenging times have passed and that this sector will return to positive territory this year,” says an FCI spokesperson.
17 Mar 2017