Factorscan talks to Jim Morrison, Divisional Manager at First Capital Financial Services in the United States and Marios Tannousis, Head of Commercial Products at Societe Generale in Cyprus about the popularity of asset-based lending, its resilience in the current downturn and its compatibility with traditional invoice-orientated financing.

Has ABL become more or less popular in the current downturn?

Morrison - The ABL market is growing as banks are more reluctant to do balance sheet lending during the downturn. This is especially prevalent in the small and middle markets (those with funding less than $20million)

Tannousis - ABL has become increasingly popular in the current downturn.

Are European markets that have not traditionally offered ABL funding showing increasing interest in the facility?

Tannousis - Yes there is increasing interest within EU markets that have not traditionally offered ABL to do so now.

How far into Europe has this development reached and are emerging European markets expressing interest?

Tannousis - ABL is now practiced in most EU countries, while there is increasing interest and upward trend in uptake in Europe’s emerging markets.

How have ABL facilities performed in the downturn? And specifically in the western United States?

Morrison - Non-performing loans have risen as companies struggle with poor sales and earnings.

How have ABL facilities performed in the downturn? And specifically in Cyprus?

Tannousis - Throughout this crisis the banks have been putting more pressure on their customers to repay debts. If clients face difficulties in meeting their debt obligations, then in some instances banks have proposed solutions such as ABL (Invoice Finance, Real Estate Finance, Leasing) to resolve their funding short-falls. Once customers are introduced to these products and find that they solve their liquidity problems, the chances are that they will continue to use such ABL facilities.

Cypriot banks have been only very lightly affected by the world crisis, having not invested in so-called toxic products at the heart of the downturn. Moreover, Cypriot banks were not lending below sub-prime, overestimating their assets or lending to customers with bad credit histories.

What is expected to affect Cypriot economy is the decrease in real estate demand, as expatriate spending is hit by the downturn. Cyprus is also expecting to be hit by a decline in tourism, as holidaymakers in the UK, France and Germany opt to tighten their belts.

Has ABL lending been affected by falling real estate values and declining demand?

Morrison - The only affect we see is that real estate relates to guarantees and side collateral that are used to support some loans. The decline in real estate values as side collateral has had a negative impact on availability in some cases.

Tannousis - In cases were there is falling real estate values and real estate provides the basis of Asset Finance, we have witnessed some decrease in demand, but nothing dramatic.

Have invoice finance companies that have traditionally focused upon factoring expressed increasing interest in the potential of ABL?

Tannousis - Invoice finance companies that have traditionally focused on factoring are showing increasing interest in the potential of ABL. In some instances all ABL activities are grouped under the umbrella of asset finance.

Morrison - Factoring and invoice finance companies are not actively expanding into the ABL market.

Is Societe Generale looking to expand its ABL offering?

Tannousis - It is under consideration.

Is First Capital looking to expand its ABL offering?

Morrison - Yes, but selectively.

Can ABL facilities be operated alongside traditional factoring services and how does such a synergy function?

Morrison - Yes. This is a growing market. A full notification factoring company can support any ABL lending by providing complete back office accounts receivables management, collections and credit protection. These products will enhance the value of the portfolio.

Tannousis - ABL facilities can function alongside traditional factoring services. One of the most important criteria for granting credit to a customer is a credit evaluation of the client. Once you have this then is easy to built upon the products offered to your client since you have a more complete picture. Also the experience of dealing with a customer is valuable in providing an impression of the client and how good their payment trends are. In this way you can also assess which ABL products will best suit the clients’ needs.

Contributed by: Factorscan www.factorscan.co.uk