The Italian Factoring Industry
Daniela Muschella
Bank of Italy
Warsaw - 23rd and 24th October 2003
The Italian Factoring Industry
• Some history
• The Italian factoring industry today
• The regulation framework
• The supervision of the Bank of Italy
Some history: genesis and development
of the Italian factoring industry
.
1963
The first Italian
factoring company
is established
early ’80s
The market starts
to develop
Some history: genesis and development
of the Italian factoring industry
2 possible reasons for this
uneven development:
1. the product regulation
2. the evolution of trade credit in Italy
Some history: the product regulation
’60s
1980
1991
Total absence of any specific product
regulation
A regional law introduces factoring
as a contract and provides its first
legal definition
The law on the transfer of trade credit
is published
Some history: the product regulation
Some positive aspects of the 1991 law:
• future credits, as well as outstanding credits, can be
sold to the factor;
• the simple payment for the transferred credits
automatically implies their property by the factor, and
this fact is legally binding towards all third parties;
• some guarantees are introduced in case of
bankruptcy of the creditor or the debtor.
Some history:
the evolution of trade credit
The phenomenon of trade
credit among enterprises is
very relevant today in
Italy...
...also in comparison to
other countries
Some data…..
Some history:
the evolution of trade credit
• at the end of the ’90s, the total stock of trade
credits was approximately equivalent to the total of
short term bank loans
• in 2002, the weighted average of the “trade credits
to turnover ratio”, among medium-large enterprises
(i.e. having a workforce of at least 50 employees), was
approximately 23%
•the average contractual maturity of these credits
was 87 days, but…
• …31% of them were paid with an average delay of
42 days
Some history:
the evolution of trade credit
The research highlighted that:
• some events can have an effect on
the terms and the relative
importance of trade credit
• a redistribution of credits and
debts among companies, as well as
their relative costs, has been
experienced through time
Some history:
the evolution of trade credit
Relative importance and contract terms
Whenever borrowing conditions are tightened, the
trade credit to short term banking credits ratio
increases
Trade credit terms tend to be counter-cyclical
This is exactly what has been observed in the
early ’80s and during the recession of 19921993
Some history:
the evolution of trade credit
The distribution of trade credits
During the ’80s and the ’90s
there has been a redistribution
of costs related to the financing
of working capital from
medium/large size firms to
small firms
Some history:
the evolution of trade credit
From the early ’80s, small firms have
experienced an increase of 25 days
in the terms of their trade credits,
while large and medium size firms
have experienced an increase of 30
days in the terms of their trade
debts.
Some history:
how the factoring industry reacted
67
72
52
37
40
30
23
2
3
4
10
19
63
19
68
19
72
19
74
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
1
6
Number of factoring companies operating
in Italy from 1963 to 1987
(Data from “Il Factoring” – a cura di A. Rossi. Ed Il Sole 24 ore)
Some history:
how the factoring industry reacted
19.151
13.146
9.514
6.695
4.478
259
379
571 1.131
2.293
1978 1979 1980 1981 1982 1983 1984 1985 1986 1987
Credit turnover in Italy from 1963 to
1987 (data in mln of €)
(Data from “Il Factoring” – a cura di A. Rossi. Ed Il Sole 24 ore)
Some history:
how the factoring industry reacted
An important reason for this steady
development is related to the phenomenon
of captive factoring intermediaries,
established by medium and large companies
that also had large outstanding trade debts.
non captive factors
36,35%
captive factors
63,65%
Market shares by credit
turnover in 1988
(Data from “Il Factoring” – a cura di A. Rossi. Ed Il Sole 24 ore)
The Italian factoring industry today
Market share of
Italian factors
in Europe
Market share of
Italian factors
in the world
25%
18%
Italy
Italy
75%
82%
(Source: Assifact/Factors Chain International) – data as of 31/12/2002
The Italian factoring industry today:
the intermediaries
84 supervised intermediaries
offering factoring services
33
33 banks
37
51 financial companies
(which cannot currently raise funds
directly from the public)
14
banks
37 specialised
financial companies
specialised financial companies
The Italian factoring industry today
9%
The banks’ market share
remains below 10%.
In addition, the first
seven intermediaries
have a 60.5% market
share: they are all
specialised financial
companies
91%
banks
financial companies
The Italian factoring industry today
Focus on the specialised
financial companies
37 intermediaries
19 have been
established by
banks
The majority of the
remaining 18 have been
established by
industrial companies
The Italian factoring industry today:
the volumes*
€ 36 bln Outstanding
An average of 67% of the outstanding of
credits are advanced by the factors
Credit turnover: € 124 bln
*Data as of December 2002
The Italian factoring industry today:
recourse & non-recourse
2002
1997
31%
40%
60%
69%
recourse
recourse
non-recourse
non-recourse
The Italian factoring industry today:
recourse & non-recourse
Non captive factors
41%
Captive factors
45%
55%
59%
recourse
non-recourse
recourse
Average from 1997 to 2002
non-recourse
The Italian factoring industry today:
the advanced liquidation
Non captive factors
Captive factors
36%
38%
64%
62%
advanced
advanced
not advanced
Average from 1997 to 2002
not advanced
The Italian factoring industry today:
the funding sources
8%
77% of debts
towards banks
are on demand or
short term
92%
towards banks
others
Average from 1997 to 2002
The regulation framework
The Banking Law of 1993 established
the principle of a gradual
implementation of the supervision on
financial companies, including
factoring intermediaries.
General
principles
applicable to all financial
intermediaries and mainly aimed
towards maintaining their
integrity
Prudential
framework
applicable only to relevant
intermediaries supervised by the
Bank of Italy
The regulation framework
The prudential framework
(applicable only to relevant intermediaries supervised
by the Bank of Italy)
• credit concentration limits
• limits on exchange risks and derivative
risks exposure
• sound organisation principles
• currently no minimum solvency ratio
requirements
The supervision of the Bank of Italy
• main goals of supervision
• main differences compared to
banking supervision
• increasing importance of
organisational aspects
The supervision of the Bank of Italy:
the approach
Increasing focus on:
New products
increasing
service
contents… and
increasing
reliance on IT
technology
Credit risks
Operational risks
(incl. legal risks)
Strategical risks
Reputational risks
Conclusions
Daniela Muschella
Bank of Italy
Financial Supervision Department
#39 06 4792 5606
[email protected]