Traditionally in Europe funding is based on a bilateral agreement between the bank and the borrower. It’s very much relationship driven. Because of this European banks carried out limited creditworthiness checks and due diligence on loan enforceability.
However, of late, the European market is flooded with US, Australian, Asian financers and other 40 lenders. This has led to intense competition for European banks offering the same product and in turn, led to cheaper financing options being available to borrowers. This has made the facilities grow larger in size and leaning towards more syndicated arrangements because of the balance sheet restrictions and borrower’s appetite for a diverse lender base. A similar change can also be noted in Asian markets, which have grown increasingly competitive over the years.
The change has also been seen in the US market, with lowered prices. In the US, lender rates are presently friendly and run by a few US-based banks in spite of Asian and European banks starting to set up operations there. However, with Asia’s participation in the Fund Finance Association and increasing cross-border involvement, it is set to become more heterogeneous.
Historically, the financing amounts in Asian markets were much smaller than the US and European market although done on a bilateral basis, like Europe. Similar to Europe, with the increase in fund and facility sizes, the Asian market is switching to Syndicate mode of banking. The use of fund finance facilities in Asia is on a rapid rise compared to the US and Europe. The governing law for the Asian market depends on the identity of the lender. For example, Asian facilities have been governed by US, Japanese or English laws.
The size of the fund finance market in Asia is smaller compared to that of the US and English. As of 2017, US is at approximately $200bn. English is at £65 whereas, the Asian market is estimated to be approximately $30-50bn but the predictions say it will rise rapidly over years.
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