Every June FCI publishes its Annual Review giving an overview of progress made by the world's biggest and most important factoring network. The Annual Review also presents FCI's annual figures as well as global factoring statistics. In this extract, we explore the European Union's Regional Updates, presented by Mr Fausto Galmarini, Chair EUF.
EUF data from 2022 shows impressive growth in the European factoring market. Turnover reached EUR 2.380 billion, with an increase of 19% over 2021. It is the second year of double-digit growth after the drop of 2020 due to the negative dynamic of the EU GDP during the pandemic. The European market is the most important globally, representing over 2/3 of the worldwide factoring market. The growth was driven by inflation resulting from the Russia-Ukraine conflict, which caused increased energy and raw material costs, along with the EU GDP rise. This growth is significant, surpassing the combined effects of inflation and GDP growth. The factoring penetration rate over European GDP in 2022 was 12.3% compared to 11.4% in 2021, proving the increasing importance of factoring in the real European economy. The percentage of international factoring was stable: 22% of the total turnover. Stable was also the percentage of non-recourse factoring (53%) due to clients’ needs to cover debtors’ risk. Funding of EUR 310 billion supports around 301,000 European clients, fostering growth, employment, and business success. The concentration level shown by the EU factoring market remained relatively unchanged, with the top five countries representing 72 % of the total EU European market: France (18%), Germany (16%), United Kingdom (15%), Italy (12%) and Spain (11 %).
Legal, Regulatory and Advocacy
In 2022, the European Factoring and Commercial Finance industry faced several issues: the CSDD directive that requires all businesses to manage their entire operational environmental and social impacts, the EBA’s final non-banking lending report, the EU-wide implementation of Basel III/ CRR3 (including NDOD), the ongoing works on AML/CFT legislative package band the new AMLA, digital age VAT and the new directive harmonising aspects of substantive law on insolvency proceedings. Regarding the CRR Reform/Basel III, the EUF supported the position of the EU Council that doesn’t include factoring in the ancillary services and welcomed the amendments to Article 183 and Article 213 which delete required coverage of frauds that credit protection needs to be eligible for credit risk mitigation. As for the eligibility and use of credit insurance as a CRM technique, EUF welcomed that the EBA and EIOPA work in close cooperation. In regard to the issue of the NDOD, the EU Council invited EBA to consider the need for providing flexibility to institutions. The EU Parliament stated that EBA shall update its default guidelines before June 2024.
Promotion and Awareness
We continue to engage with regulators and lawmakers to improve how we provide our services for the benefit of all stakeholders. EUF and FCI jointly organised the annual EU Factoring and Commercial Finance Summit in Rome. It was very successful thanks to the participation, among others, of Giovanni Sabatini (ABI/The Italian Banking Association), who underlined the important contribution of factoring to the short-term financing to the businesses, and Antonella Correra (The EU Commission) providing updates on the Late Payment Directive.
Even though EUF has a relationship with almost all the national factoring associations, contacts are in place to further enlarge the membership.
Regarding the Late Payment Directive review, EUF sent a position paper underlining that the directive of 2011 has not led to a decrease in late payments, especially not in the public sector. Practical measures to enforce compliance with such payment terms are more relevant than fixing maximum payment terms by law. Forms of financing like factoring are a solution to the late payments issue. Limiting or prohibiting ‘bans on assignments’ would increase the availability and use of factoring in the EU. Following the EUF goals on CRR reform, it is challenging to introduce new elements in the CRR compromise text of the European Parliament and the Council of the EU. Recent bank failures will likely decrease room for deviation from the agreed text. The EUF’s best option is to defend the achievements obtained in the previous stages, considering the EBA estimates an increase in NPLs from the conclusion of the State support program for businesses granted in the Covid period. The EUF will continue to talk with the Authorities about a different treatment of factoring concerning its consolidated low level of risk even during the negative cycle of the economy.
It is difficult to repeat the impressive results of 2022 due to the expected drop in the EU GDP, the complexity of the Ukraine-Russia conflict, and the ECB’s policy to reduce the inflation rate, increasing the cost of funding significantly. The EUF has two main issues to solve: firstly, the NDOD. The new rule generates many ‘false positive’ errors with the buyer with a good rating or Public Authorities being wrongly classified as default because the EBA considers a trade receivable a credit obligation/loan. A possible solution is to adopt the AIRB model that allows a different calculation of the past due but needs data that a single factor can’t have. EUF is evaluating a data pooling of all the members to obtain a representative and exhaustive sample to submit for the approval of the Central Banks. Secondly, the CSDD for the sustainability of the business with the high expectations of the Authorities. To face this new framework, The EUF has decided to establish a specific Committee dedicated to the ESG aspects that are becoming increasingly relevant, in which each member can share their experience. EUF has done and will do everything necessary to protect its business concerning the importance of its role in developing the real economy.
(Photo: © Sadik Boujaida)