The syndicated lending market has historically been dominated by the big players in banking, but contemporary trends indicate that change is afoot. Smaller entities, even non-banks, have begun to rapidly proliferate the market. The result has been increasing complexity, with more than 1,000 lenders per deal becoming common.i
It’s easy to see that facilitating the needs of 1,000 lenders creates quite a time and efficiency challenge for arranging banks as they market the deal and communicate particulars. However, the heavy workload doesn’t stop when the deal is sealed. The complexity of managing syndicated loans continues straight through to loan servicing, making it difficult for lenders who must sift through large volumes of information delivered through inefficient formats.
To better facilitate large and small deals alike, it’s time for the industry to wake to the promise of technology and the vision of open banking.
The Story of Syndicated Loan Servicing Is One of Manual Processes
Despite technological advances in other areas of lending, the syndicated market remains a highly paper-intensive workplace, governed by manual workflows that drag down efficiency. For example, a continued reliance on spreadsheets limits institutional ability to find and view updated information.
To further complete the complexity, agent banks continue to rely on outmoded forms of communication, such as email and fax, making it difficult for lenders to identify which version of data is the most recent. The story currently written for syndicated lending depicts an arduous journey fraught with a number of challenges for lenders.
The first is risk. As notices come in from agent banks, they must be retrieved and then re-entered to reach downstream systems. Duplicating data entry tasks introduces additional opportunities for error which are then replicated every time the data is re-entered somewhere new.
The second challenge faced by banks in this low-tech environment is lagging efficiency. The reliance on manual workflows requires more resources to complete tasks, driving up costs and delaying the speed with which information is entered and made available to all related parties.
For the lenders, this lack of digitization creates a time delay between receiving notices or other important information and making changes to internal files. The lack of real-time immediacy puts all participants at risk while the lack of efficiency is a direct contributor to rising costs.
However, the story of syndicated lending doesn’t end there, as technology paves the way toward a more efficient and open future.
Using Data to Break Barriers in Syndicated Lending
While the syndicated lending market has gotten off to a slow start when it comes to technology adoption, banks are beginning to make up for lost time. Over sixty percent of banking executives responding to a recent Loan Market Association (LMA) survey highlighted Fintech as an opportunity to improve agency operations and related services.ii
The emerging focus on technology is partly inspired by recent market turmoil. Globally, the number of deals reaching a financial close during the first quarter of 2021 fell thirty-one percent year-over-year.iii This marked the slowest quarter, by number of deals, since 2010.iv
However, the market didn’t remain down for long. As the economy began a rebound following the COVID-19 health pandemic, global syndicated lending was up twenty-two percent by June, closing the first half of the year at a three-year high.v
Volatility like this creates a competitive landscape. To keep pace with market trends and to quickly seize on new opportunities, lenders need to gain a sharper view of their own portfolio, utilizing technology to simplify decision making.
The current process of sorting through faxes and emails is out of touch with the proficiency offered through emerging technologies, such as document automation. Before entities can take advantage of advancements like these, however, they need a single place to upload and store data and a singular access point to reach it.
One viewpoint is critical for protecting the sanctity of data and ensuring that all participants have real-time access to the latest notifications and disclosures. Taking this approach, lenders can easily search historic records or the most recent communications to find information, making it easier to access data or make file adjustments.
Lenders can even view positions all from one screen. A clear and transparent view of their positions provides lenders with greater portfolio visibility, offering insights for more informed decision making, such as when to participate in new syndicate deals and when a secondary sale might be advantageous.
In the end, having a single place to store communications and data creates a real-time source of truth, while central access streamlines workflows to improve internal productivity and allows efficiency to soar. It isn’t the end of the syndicated lending story, but a new chapter, as open platforms join agent banks and lenders in an efficient orchestration of information sharing that benefits all.
i “Transform into a Platform Player with Digital Lending Solutions.” Finastra. Retrieved from https://www.finastra.com/sites/default/files/file/2021-11/resource-transformation-syndicated-lending-infographic.pdf.
ii “LMA Releases Results of Its FinTech Survey.” Loan Market Association. LMA Press Release, Jun. 17, 2021. Web.
iii “Global Syndicated Loans Review: First Quarter 2021|Managing Underwriters.” Refinitiv, 2021. Web.
iv “Global Syndicated Loans Review: First Quarter 2021|Managing Underwriters.” Refinitiv, 2021. Web.
v “Global Syndicated Loans Review: First Half 2021|Managing Underwriters.” Refinitiv, 2021. Web.
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