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BCR Exclusive: Greece reports increased interest in factoring despite economic decline

Alexandros Kontopoulos, CEO of NBG Factors S.A, Board Member of the Hellenic Factors Association and Member of the Economics & Statistics Committee of the EU Federation, writes about the increase in factoring operations in Greece, in the midst of economic turbulence.

2015 was a very difficult year for the Greek economy, but also for the society as a whole. Greeks had to take part in two elections; firstly to elect a new government, and secondly for a very divisive referendum. The Greek government had to carry out very exhausting negotiations with its creditors, which resulted in long bank closures and capital controls which largely affected importers. This led to a painstaking but successful recapitalization process for systemic banks. All of these incidents accumulated on what society had experienced since the crisis emerged i.e. heavily taxed incomes, a long-running recession and high unemployment rates. At the same time, banks’ management had to cope with dissolved deposits, which resulted in a lack of liquidity and injured assets (mainly non - performing loans) that led to three different recapitalisation processes.

Everyday life became extremely difficult for individuals, households and corporates. Limited available income meant that consumption fell due to uncertainty and economic disorder. At the same time, Greek importers were affected severely due to lack of confidence for the country and also credit limit cancelation from credit insurers. Investment plans were abandoned, as additional risks caused corporate to avoid these opportunities.

During the economic crisis, factoring proved to be a reliable partner for fueling liquidity, managing credit risk and collecting receivables which doubtlessly needed particular expertise. Initial worries that declared factoring as a last resort solution had been replaced by an image of a dynamic product which benefits both sellers and buyers. From plain vanilla products like domestic recourse factoring to the most sophisticated solutions which involve either bilateral or syndicated borrowers and reverse factoring facilities, factors continued to supply the market with necessary liquidity and tried to tailor their services to different sectors and clients.

Despite temporary shrinkage in 2012 – 2013 (2012: 13 per cent; 2013: 5 per cent), total factoring turnover increased by 8 per cent1 in 2014, with a slight decrease (-1 per cent) in 2015, according to statistics from the EU Federation for Factoring and Commercial Finance Industry. But further research on the 2012-2013 period shows that the decline is attributed mainly to bank consolidation activity, and also to the fact that Greek banks (to which Greek factors exclusively belong) had to reconsider their strategy on corporate portfolios to hard deleverage because of the recession.

Factoring increased by 8.5 per cent during the crisis era (2009-2015) when at the same time the national economy lost more than 20 per cent of its size. As for the GDP penetration, the Greek factoring market amounted to 2.55 per cent in 2006, and gradually increased to 7.31 per cent in 2015, but still fell short of the European average of 10 per cent in 2014.2 European figures show that around 160,000 corporates use factoring services, with total funds in use of €170 billion. Greek Factors have to struggle with two different trends on transactional standards: that of extended credit terms related to the European average which facilitate the use of factoring; and that of post - dated cheques as a means of payment that facilitate traditional working capital solutions provided by banks. It was the crisis, however, that featured lack of confidence on that particular payment method.

Over the last six years the market was attracted to the benefits of factoring in covering working capital needs. It was the factors’ expertise on managing and collecting receivables, but also the ability to assess buyers’ credit risk based on technical but also transactional criteria. Banks adopted factoring as a secured facility, having reported low overdue figures in asset quality reviews tests carried out by the Central Bank on loan portfolios in 2013.3

The importance that receivables incorporate is revealed when their value is optimized. As with other assets, they carry their risks which corporates need to assess, but they also hide value, which inevitably should be considered in the supply chain finance process.4 This is also the most valuable asset Greek banks try to incorporate when considering either bilateral or syndicated finance solutions requesting for factors to get involved.

Greek factors modernized their products by closely following international trends. By reviewing international organizations they developed their international business both through the traditional two factor channel, but also in direct collection. They also began to offer reverse factoring services a number of years ago, thus offering the opportunity for smaller sellers to get access to cheap liquidity without offering additional securities and also having protected their receivables (Reverse factoring in Greece is mainly offered on non-recourse basis). On the other hand, large buyers can benefit from economies of scale and protect their cash from early payments due to sellers’ struggle.

Having been a product in the market for approximately twenty three years, factoring has penetrated almost all sectors. It is now a very popular and preferable solution among financial managers who are seeking to optimize working capital. Its use extends from SMEs to multinationals and very large local companies.

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