In a world grappling with high interest rates and geopolitical turbulence, Demica, a market-leading fintech powering the trade finance programmes of the world’s largest trade banks and corporations, unveils its forecast for corporate finance in 2024.
This analysis not only explores the emerging trends in asset-backed finance and funding but also casts light on the increasingly pivotal role of fintech in bolstering economies worldwide.
These insights are key to understanding the challenges and opportunities that lie ahead for corporate treasurers in a rapidly evolving global economic landscape.
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Asset-backed finance growth
In 2024, as geopolitical instability and economic challenges such as high inflation and energy prices persist, the demand for asset-backed finance from large corporates will continue to increase.
This shift is a response to the volatile financial environment, where organisations seek to diversify their funding sources. The traditional borrowing landscape is transforming, with companies increasingly supplementing traditional loan, bond or equity financing with flexible asset-backed options.
This trend is partly driven by the looming $500 billion refinancing cliff in H2 of next year, according to information shared with Reuters. US companies that financed at two or four per cent may find they are refinancing at 11 per cent in 2024.
Goldman Sachs estimates US corporate debt maturities will amount to $790bn in 2024 alone. The Bank of England has warned that more leveraged companies may have limited ability to refinance from revolving credit if they are unable to do so at market prices.
To mitigate these challenges, receivables and payables financing will become crucial tools, offering a more cost-effective alternative to standard cashflow lending.
Non-banks broaden access to financing
As 2024 unfolds, the role of non-bank institutions in supporting financing for less-loved & harder to finance industries, such as logistics and industrial commodities, will become increasingly prominent.
The financial landscape is evolving, as banks refocus on their ideal customer profile, leaving those companies who don’t fit with less available access to financing. Non-bank financial institutions – such as institutional investors, credit funds, insurance companies – will emerge as key players in supporting companies’ in this position, especially as traditional banking systems grapple with the cost of capital changes.
Companies, particularly those trying to transition away from fossil fuels or towards cleaner energy, will seek these new sources of liquidity to fund their decarbonisation initiatives amid growing financial pressures and stringent regulatory environments, like the EU’s 2050 net-zero rules.
This shift will be crucial in enabling companies to adapt to the increasing costs associated with decarbonisation processes and technologies, and to meet the revised requirements of the EU’s Late Payment Directive.
The year of AI, inventory finance, and private credit
The escalating demand for semiconductor chips in 2024, driven by the global expansion of AI applications, will significantly impact global supply chains.
The political landscape, characterised by initiatives like Germany’s $22 billion subsidy plan and the US’s investment in semiconductor manufacturing, will further intensify this demand. Gartner predicts AI semiconductor revenue will increase from $53.445 bn in 2023 to $67.148bn USD in 2024.
The gap before these new plants become operational will spike the need for inventory finance. Furthermore, private credit markets are expected to offer innovative financing solutions, stepping in where traditional banks are limited by risk policies. Blackstone, a leading asset manager, predicts substantial growth in private financing, pointing to a year where data-driven and creative funding solutions become paramount.
Growth in new funding sources for emerging markets
In 2024, rapidly growing economies; particularly the Gulf states and Saudi Arabia, will continue to diversify their economies and increase capital inflows.
The use of Sharia-compliant supply chain finance will become a significant mechanism in these efforts, as these regions look beyond oil dependency. With the global trade finance gap still wide, even a small percentage change in the adoption of supply chain finance can represent a substantial shift.
Demica estimates supply chain finance is currently only deployed at 15% of its full potential relative to the total amount of trade receivables outstanding. Meanwhile, Citigroup estimates receivables finance accounts only for up to $3.5tr against $20tr in the annual global trade in goods.
Corporate treasurers focus on financial hygiene
The coming year will see corporate treasurers placing a renewed emphasis on financial hygiene, with a focus on credit and collections management. In a tightening global economy, the discipline which a supply chain finance programme instils around billing and collections will be hugely valuable.
This trend is underpinned by the need for organisations to swiftly adapt to uncertain market conditions and political volatility. Supply chain finance, with its direct tie to underlying sales, offers treasurers the flexibility and customisation they require to maintain financial discipline and optimise liquidity, especially in a downturn or turbulent period.
Maurice Benisty, Chief Commercial Officer, Demica said, “Corporate treasurers face a year of uncertainty in 2024 with opinions split between those expecting rates to come down and others preparing for them to be ‘higher for longer.
“Our insights indicate a shift towards more flexible and innovative financing methods, from asset-backed finance to the growing influence of non-bank institutions.
“As we navigate these changes, the agility and strategic foresight in financial management will be crucial. This period, while challenging, presents an unprecedented opportunity for corporations to diversify their funding sources and explore new avenues for sustainable growth and resilience in an ever-evolving economic landscape.”