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The Year That Was - Editorial Board Review of 2011

February 2012- BCR Factorscan

Our outlook a year ago was for no ‘double dip’ and no significant growth. We were right on both counts. While the economy in the U.S. was very weak, some improvements were noted in the second half of 2011, notably growth of GDP and a lowering of unemployment. However, the rate of improvement was small and if this continues it will take many years to return to ‘normal’ conditions.

There was some deterioration in the Canadian economy in 2011. GDP growth was very low, and although unemployment figures fell, the number of people out of work remained painfully high. The resource sector, a major part of the Canadian economy, suffered from a world-wide glut of oil and gas. A major confrontation between the environmental movement and the resource industry is looming for 2012. The resource people need to build thousands of kilometres of pipelines to the Pacific Coast (to ship to an energy-hungry China) and to the southern U.S. where there are refineries but not enough oil. Tens of thousands of jobs hang in the balance. There will be tremendous pressure put on the Obama administration by the labour movement, on the one hand, and the environmentalists on the other. Competition in the Canadian factoring market continued to be intense in 2011. Total volume handled declined ten per cent from the previous year to about CA$4.5 billion. The number of players declined as well, to 51 at 31 December 2011 from 55 a year earlier.

The market continued to be dominated by two companies, National Bank of Canada and Accord Financial; together they control two-thirds of the total volume. The main competitors for the non-recourse factors are the credit insurers who offer attractive rates but tend to be fickle with credit.

At this point (mid-January 2012) it is difficult to foresee any significant change in the economy for 2012.

Current exchange rate:

1 euro = 1.30127184 Canadian dollars

Josep Selles, General Manager of Eurofactor Spain

Based on the statistics taken from the end of November 2011, we can say that this has been an excellent year for the factoring industry in Spain. Considering the economical environment, the flat consumer rates, the country not in recession but growing at just around one per cent, a growth of 9.6 per cent is a figure we would have taken at the beginning of the year.

With reference to the annual figures we can observe that domestic factoring is only 6.5 per cent up and the weight of the growth of the sector relies on international factoring (26 per cent), as export factoring was the one that grew the most (28.2 per cent) – probably a consequence of the fact that the Spanish companies which have a competitive product have increased their exports, trying to find markets with a higher appetite than ours.

The main problem has been how to deal with the portion of factoring where the public administration is the debtor. The traditional delay of payment within the public sector has increased strongly, creating a lot of difficulties – for the industries that were unable to advance the new invoices as the old ones remained unpaid, and for the factoring companies that have been increasing the portion of this business in their portfolio.

To be honest, it would be good to know someone who could accurately predict what is going to happen even in the next five minutes, economically speaking, because as I write this, what I say could quickly become ‘factoring fiction’.

We have had a change in Government but also, more importantly, a change of policies in the European Central Bank that has relaxed the financial constraints of financial institutions; this situation may lead to a certain recovery, but I’m afraid that only in the second half of the year.

I have no reasons to believe that the factoring industry will not maintain at least the same positive trend that it started with in 2010 and maintained in 2011.  Also certain measures are being taken by the new Government to help the administrations to fulfil their commitments; a situation that may unblock the concentration of risk and allow us to offer more financing facilities to the industries.

Let’s keep the optimism. 2012 has an extra day. Let’s hope we will use it to improve the economical situation, not only in Spain.

Marius Savin, Director of Transaction Banking, Standard Chartered Bank Singapore

The key industry players managed to grow their business further in 2011 across a variety of markets, after strengthening their credit models in 2010. In my view, this was the result of better focus on the innovative client value proposition across the entire supply chain as well as ‘slimming’ business models. Though these elements were always present in the peoples’ minds, the challenges faced from the financial crisis made them a must for business survival.

The 2012 outlook seems more challenging as there are many open issues still unfolding; however I do believe that there will be growth opportunities (no matter the size of the business) either by capturing new developing trade flows (Asia, Africa, Middle East) or by identifying niches (specific industries or trade corridors). At the same time, balanced resource/capabilities allocation and efficiency will become the primary focus for successful management.

John Beaney, Head of International, HSBC Invoice Finance (UK) Ltd

Two thousand and twelve will be a defining one for international receivables finance and the factoring industry. The economic conditions are likely to challenge us whether it is through slowing growth in the emerging economies of the world, an election year in the US and recession - and continued fragility - in Europe. It is a year in which we have the ability to demonstrate our value to shareholders, clients and indeed governments.

Today’s regulatory framework prefers products which are efficient in the use of a bank’s capital and that is a huge opportunity for our industry. Services which help support sales when orders can be hard to come by are needed by businesses. Enabling them to offer attractive terms even to new customers and in new markets makes what we do doubly relevant.

To fulfil our potential, however, we have to deliver on our promise of excellence in credit management, supporting sales to sound businesses and helping clients to avoid losses when failures occur. We must continue to use our understanding of receivables to successfully balance risks and reaffirm our credentials as lenders of first resort.

HSBC starts the year in excellent shape. Our UK receivables business increased support for international business significantly in 2011. We’ve built this success on a service platform that earned us the recognition as ‘Best Factor’ by Trade Finance Magazine and ‘Best Commercial Credit Team’ from Credit Today and is also reflected in accreditation by the Institute of Credit Management, so we look ahead at 2012 with confidence.

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