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Treasury & Capital Markets
Debt and capital markets shunned for internal resources
Companies in Asia seek to fund their operations primarily with retained earnings and traditional bank loan facilities, The Asset Benchmark Research’s 2015 Treasury Review reveals. Debt and equity capital markets, on the other hand, rank much lower in the order of preferred funding avenues for the more than 750 corporates that participated in the Review.
Christoph Kober 21 May 2015

Companies in Asia seek to fund their operations primarily with retained earnings and traditional bank loan facilities, The Asset Benchmark Research's 2015 Treasury Review reveals. Debt and equity capital markets, on the other hand, rank much lower in the order of preferred funding avenues for the more than 750 corporates that participated in the Review.

 

Retained earnings and bank loans represent the top source of finance in 2015 for 37% and 29% of businesses, respectively. Working capital facilities, i.e. receivables discounting, supply chain financing, inventory financing and similar arrangements, are cited as primary funding avenue by 22% of respondents, while debt and equity capital markets rank as highly for only 4.7% and 3.8%, respectively.

 

Notably, alternative sources of finance - i.e. independent invoice finance providers, peer-to-peer lending platforms and the like - are considered among the top three avenues of financing for nearly 20% of respondents. This is a clear indication that credit appetite by financial institutions does not fully meet the requirements of businesses in the region, especially those too small to access capital markets.

 

When asked about the major challenge businesses face in the region from a financing angle, more than one-third of respondents cite trade finance cost as a major issue. Availability of trade finance facilities cannot meet demand in Asia, and internationally. One finance manager at a Chinese MNC notes:

 

"In some regions such as Eastern Europe and North Africa, it has become more difficult to get trade finance especially when only small deals of US$1-2 million are done. For big ticket trades, we don't have that problem."

 

Indeed, trade finance cost is considered the primary financing challenge among 45% of Chinese respondents to the 2015 Review. Some may still feel the aftermath of the Qingdao Scare of June 2014, where a metals inventory financing hoax was uncovered and led many local banks to restrict trade facilities. But with nearly half of Chinese corporates not able to finance their trade flows at a cost they consider to be economical, deeper issues are at hand.

 

Some respondents note that more of their customers are using payment terms as an easy way to finance themselves, by asking for longer credit terms or delaying payment. Even new customers are demanding sales on relatively long credit terms. In Malaysia and most other Southeast Asian economies, access to working capital is considered to be a challenge for one in four companies.

 

Chinese respondents also highlight a lack of expertise within both their banking partners and their internal credit departments when it comes to international trade finance knowledge.

 

Conducted by Asset Benchmark Research, the leading financial research house in Asia, The Asset Treasury Review 2015 attracted the participation of 777 respondents of the region's most senior treasurers and CFOs during the first quarter of 2015.

 

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