Demica: Rising Interest Rates Impacting Banks’ Asset Growth

Leading fintech and supply chain finance platform Demica has released its 2024 Benchmark Report, finding that 55% of global banks have seen asset growth negatively affected by rising interest rates. 

In addition, 44% of global banks studied noted geopolitical risk as having an adverse effect on their organisation's asset growth. 

To reverse course and fuel growth, Demica says banks are diversifying their assets with a focus on risk distribution. 

Demica: Banks diversifying investments for asset growth

Per Demica’s report – which surveyed 169 supply chain finance professionals across 31 countries – the majority (52%) of global banks are planning to move into new product lines in 2024 – compared with 41% last year – in a bid to generate asset growth through less conventional avenues. 

Of the global banks seeking new lines of investment, some 27% identify Trade Receivables products as showing the most growth potential, overtaking Payables products for the first time since Demica’s first annual Benchmark Report three years ago. 

And, of the supply chain finance professionals surveyed, this year marked the first time the majority (62%) had personal involvement in an ESG-focused transition, highlighting a growing trend at major banks as they revamp transition plans to a more sustainable future post-pandemic. We outlined the Top 10 most sustainable trends in fintech, financial services and banking earlier this year. 

What’s more, while macroeconomic headwinds are driving banks to shake up their asset portfolios, promise in new asset lines – like Trade Receivables – mean many global institutions remain cautiously optimistic about improved asset growth. 

Indeed, global banks are already entrenching themselves in Trade Receivables asset lines. BNP Paribas began collaborating with Tungsten Network for e-invoicing linked Receivables as far back as 2020. 

Now, as Trade Receivables have grown, many more banking institutions are looking to tap into this growing asset class. 

Perhaps this is why – despite persistently harsh market conditions – Demica finds that 81% of banks surveyed expect to see their supply chain finance assets grow over the next 12 months, with 35% of report participants predicting asset size increases of more than 10%. 

Demica Chief Executive Matt Wreford says: “Supply chain finance is demonstrating robust growth despite the uncertainty in the global economy. 

“Payables financing may have suffered from high interest rates but banks are continuing to see growth in asset sizes and are focusing on receivables products which are more appealing in the current market environment.

“What our Benchmark Report shows is that non-documentary trade finance products remain ideal for meeting corporate financing requirements even when interest rates are high, thanks to its flexibility and the diversity of products and services. 

“Banks have every reason to expect further asset growth over the next 12 months.”

You can find out more about how macroeconomic headwinds will affect the financial industries in 2024 in our joint report with Convera. 

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