Blockchain technology is on everyone’s lips, but it is still often seen as the next threat to the financial sector. The distributed ledger technology (DLT) on which the blockchain is based also has enormous potential for banks and credit institutions. Because wherever standard processes are carried out manually and information is unevenly distributed, DLT can improve operations and reduce costs. A new pilot project for the syndicated loan business shows how financial institutions can leverage this potential. Seven leading banks have participated in this project, including BNP Paribas, BNY Mellon, HSBC, ING, and State Street Bank.
Innovative Technology As The Basis
The basis of the pilot project for the syndicated loan business is an open-source platform based on distributed ledger technology. It is a unique form of data processing and
storage and manages a distributed ledger. The employees of the participating banks sit at different computers and locations but are connected via a network. Each participant has an identical copy of the distributed database and can create or view new entries. An update mechanism synchronizes all copies of the database entirely automatically.
Prime Example: The Syndicated Loan Business
For the syndicated loan business, this type of lending via a DLT platform is a quantum leap. Traditionally, syndicated loans, also known as syndicated loans, are very costly to manage. This is because at least two, but often hundreds, of banks form a consortium and grant a borrower a joint loan. Financial institutions use this form of the business transaction when the loan amount is too high for a single bank. The lead bank – the consortium leader – takes on the administrative tasks for the consortium. This means that he manages the joint allocation of funds and gives each participant individual information.
Due to many parties, the consortium leader has to spend a lot of time on these administrative tasks and communicating with the consortium. Telephone calls and e-mails between the individual participants are still the order of the day. The selective interaction is not only difficult to understand but also extremely time-consuming and inefficient. Lenders can only obtain loan information on demand and therefore have no real-time insight into ongoing lending operations. Immediate risk adjustments are hardly possible.
An International Consortium Is Showing The Way
The new solution, Fusion LenderComm from the financial software manufacturer Finastra, which is based on the DLT, connects the lead manager and the lender directly and creates an online marketplace for the syndicated loan business. Loan agreements, provisions, balance sheet items, and detailed transaction data can be viewed and administered in real-time. The data is automatically fed from the lead bank’s credit service platform to the Fusion LenderComm platform.
This reduces costs and effort, which increases the return at the same time. The lending banks, in turn, can easily view and manage their current loans themselves in self-service, without having to rely on the information from the lead manager. This allows them to adapt their loan portfolios independently based on the database. Seven leading banks are already participating in the pilot by exchanging data directly between the lead managers and the lenders, including BNP Paribas, BNY Mellon, HSBC, ING, and State Street.
Even in the pilot phase, around ten percent of the entire syndicated loan market will be processed using the new solution. The platform should be available to all banks in the syndicated loan business in the first half of the year. In the future, the platform should encompass the entire value chain and become an online marketplace for fast trading and credit processing by exchanging data directly between the syndicate leaders and lenders, including BNP Paribas, BNY Mellon, HSBC, ING, and State Street.
Even in the pilot phase, around ten percent of the entire syndicated loan market will be processed using the new solution. The platform should be available to all banks in the syndicated loan business in the first half of the year.
In the future, the platform should encompass the entire value chain and become an online marketplace for fast trading and credit processing by exchanging data directly between the syndicate leaders and lenders, including BNP Paribas, BNY Mellon, HSBC, ING, and State Street. Even in the pilot phase, around ten percent of the entire syndicated loan market will be processed using the new solution.
The platform should be available to all banks in the syndicated loan business in the first half of the year. In the future, the platform should encompass the entire value chain and become an online marketplace for fast trading and credit processing.
The platform should be available to all banks in the syndicated loan business in the first half of the year. In the future, the platform should encompass the entire value chain and become an online marketplace for fast trading and credit processing. The platform should be available to all banks in the syndicated loan business in the first half of the year. In the future, the platform should encompass the entire value chain and become an online marketplace for fast trading and credit processing.
Distributed ledger or blockchain technology is therefore not a threat to banks per se, but in fact, offers plenty of opportunities to increase efficiency, reduce costs and increase returns. Against the looming interest rate turnaround background, lending is becoming much more lucrative again for banks. That is why it is essential to establish lean and profitable processes and innovative technology. DLT is the key to a modern IT infrastructure and efficient processing. A distributed ledger and blockchain technology solution can score points above all with speed and data security. It enables real-time processing and makes data manipulation impossible. In this way, the financial sector is prepared for the future.
