Editorial Board member of TRF News and CEO of HPD Software, Kevin Day, makes a comprehensive analysis of the development of asset based finance in the APAC region.
Asset based finance (ABF) is enjoying a strong period of global growth, with the pace of development varying across developing and developed markets. While mature markets such as Europe and the US continue to expand it is in developing markets where the fastest growth is being recorded and nowhere is the potential for the sector more positive than in Asia-Pacific (APAC). This is why HPD announced their latest office opening in Singapore last month and held a major conference on ABF trends in the region in Sydney. Powered by robust economic expansion, a substantial SME market and the greater use of technology, the ABF sector is poised to accelerate its growth and play a far greater role in meeting growth companies’ funding needs.
Estimates from 2018 put the global volume of invoice factoring and asset based lending at US$3tn, up 7% from 2017. Europe remains the strongest region, commanding over two thirds of total market volume equivalent to close to 15% EU GDP, but it is among emerging economies where the greatest prospect of fast-paced growth lies, with APAC having particularly good prospects. Factoring in the region has grown by 300% since 2012, showing a strong upward trend in ABF equating to a factoring turnover of over €695 billion .
Factoring is probably the most widely adopted form of ABF in the region. China commands the largest market share, accounting for 61% of total APAC factoring volumes. Taiwan has the second largest market share, with 20% of the region’s factoring volumes, followed by Australia and Hong Kong with 19% and Singapore with 17%.
There is a growing array of private funders in the APAC region, complemented by strong state-sponsored funders. Australia leads the region with 54 private factoring funders, followed by China (47), Taiwan (27), Hong Kong (14) and Singapore (12). Thailand and India enjoy a higher number of private funders than Hong Kong and Singapore, due to their bigger economies, but the strength of these smaller markets is reflected in their superior factoring volumes – annual factoring volumes in Thailand and India are some 10% of the totals for Hong Kong and Singapore.
China is the single largest ABF market in Asia and continues to grow. According to leading research firm Qianzhan Intelligence, the Chinese invoice factoring market is on track to reach US$3.12tn (€2.76tn) by 2021. Consulting and research firm Frost & Sullivan predict that there will be more than 538,400 SMEs in China by 2020, their growth spurred by domestic policies to encourage entrepreneurship. Moreover, since 2012 registered commercial factoring companies’ numbers have grown from 45 in 2012 to over 6,550 in 2017.
Singapore is one of the fastest growing ABF markets, having established itself as a global financial leader. Singapore has been described as the ‘centre for excellence’ by the South and South East Asia Regional Director of the FCI, with a two-factor volume of US$1.273bn (€1.13bn) and an annual factoring turnover of €44bn. Hong Kong is probably the most mature market for factoring, given its strong industrial and trade orientated sectors. Its factoring sector is enjoying double digit growth rates, with annual factoring turnover of €53bn.
Australia also plays an important regional role in the ABF sector. The country has experienced somewhat of a resurgence with annual factoring volume increasing from A$3.4bn (€2.11bn) in 2006 to A$5.3bn (€3.29bn) by 2016 and in 2018 boasted a factoring volume of €54bn. Prospects for the industry were discussed at HPD’s Growth Factors Conference in Sydney in May, organised by the local office, which numbers leading banks, including, Westpac, Investec Australia, Macquarie and Bank of Queensland as clients.
Probably the most significant key driver of ABF expansion in APAC is the region’s strong economic growth. The IMF regards the APAC region as the most dynamic in the global economy and forecasts GDP growth of 5.6% for this year, far outstripping the worldwide average forecast of 3%. The OECD’s four-year forecast for APAC’S average annual GDP growth is 6.1%.
Against such a buoyant economic backdrop it is no surprise that SME expansion, another key driver of ABF lending growth, is also healthy. SMEs in the region account for 98% of all enterprises and employ 50% of the total workforce. A recent EY survey, found that regional SMEs are optimistic about the outlook for their business, anticipating robust revenue growth, with 25% projecting double-digit revenue growth. ABF funding is playing an ever increasing role in funding this expansion.
Another factor that is helping boost regional ABF growth is technology. ABF management software functionality and transaction streamlining has been transformed in recent years - the technology is now able to update collateral values as clients generate invoices in their day to day business, thus reducing the lead-time between raising an invoice and receiving funding. Banks are adopting such platforms to automate and streamline data capture requirements and more efficiently deliver a seamless financing product to their business customers.
Overall we see APAC as an increasingly important region for HPD’s future expansion, as its role in the global factoring market is only set to expand. Through HPD’s offices in Australia and Singapore, and others I am sure we will open in the region in the years to come, we hope to also play a greater role in the growth of the ABF sector in APAC and support the region’s businesses to secure the funding and finance they need to be a key factor in powering the region’s continued, fast-paced growth.