The Collateral Crisis in 2023

Once again, the global economy and global geopolitics are in crisis. The Russian invasion of Ukraine marches on, supported by China, and to some extent India, who are now the largest importer of Russian oil. Many western countries are experiencing an energy crisis, an interest rate crisis, a credit crisis, an inflation crisis and in many instances a food crisis. Added to these crises, we are now experiencing a “Collateral Crisis”. It is inconceivable that in 2023 the world is suffering so badly but the facts show that there is a crisis everywhere you look, and governments should bear the brunt of their population’s anger.

Causes and concerns

As an example, the Eurozone core inflation recently hit an all-time record high of 5.6%, (8.7% in Germany), whilst remembering the words of Christine Lagarde the president of the European Central Bank who said in 2022 inflation would come down, and in 2020 said it would hardly go up at all. As a result, bond yields have gone up along with cost of borrowing and for those in the Collateral Transfer market, the current economic climate is altering their outlook on where to place their funds.

For those companies who provide Bank Guarantees (collateral), for other companies to utilise for loans and lines of credit, 2023 has been a watershed for asset diversification. To start with, quantitative tightening by central banks has ensured that domestic merchant and international banks and other finance houses have reduced the size of their loan books, thus making new credit facilities hard to come-by. For those who can access credit facilities, the central bank’s “increase in interest rate policy” to combat inflation has pushed up the cost of borrowing.

As a direct result, the demand for collateral has shot through the roof with the provider companies unable to match the increased demand. In fact, many providers of collateral are looking to diversify away from collateral transfer and utilise their assets in more profitable arenas. This in turn is making the demand for collateral more acute, pushing up the cost of leasing Bank Guarantees to levels not seen since the financial crisis of 2007 – 2009.

What does this mean for IntaCapital Swiss?

However, IntaCapital Swiss, Europe’s market leader in the collateral transfer market is still providing access to loans and lines of credit at highly competitive prices despite the increased demand and costs for bank guarantees. IntaCapital Swiss have been providing this service for well over a decade and have a data-base of collateral providers who have kept their prices stable, whilst still continuing to provide collateral to those companies wishing to access loans and lines of credit.

Furthermore, some companies that have presented credit facility applications to their bankers offering Demand Bank Guarantees as collateral, have found their application rejected, because as previously advised above, banks are reducing the size of their loan books. However, due to their years of experience in the collateral transfer market, IntaCapital Swiss have foreseen this potential problem and have a data-base of third-party lenders who will replace any bank declining to lend against a Demand Bank Guarantee.

The future of lending

It is apparent, especially in Europe, that the central bank policy of increasing interest rates together with quantitative easing is not having the desired effect to bring inflation under control and it returns it to the stated policy of 2%. Central banks may well continue to increase interest rates thus putting even further pressure on the availability of collateral and in turn making it harder for companies to access loans and lines of credit in the collateral transfer market. 

However, amongst all the geopolitical and global economic uncertainty IntaCapital Swiss are still able to provide access to loans and lines of credit at a cost not detrimental to their clients.