HSBC to expand factoring

HSBC Bank Middle East Ltd will launch factoring services in Bahrain and Qatar this year after business doubled in the UAE over the last two years, a senior bank official said.

"Our factoring services business has doubled since we launched it in the UAE in 2003. We are looking at launching this new concept in Bahrain and Qatar before the end of 2005," said Christopher Lewis, regional manager for trade services.

"We have over 100 customers and turnover from factoring business is about $600 million (Dh2.20 billion)," he told Gulf News.

A relatively new concept in this region, factoring, as an alternative means of financing, is catching on with some banks launching this service. "It is potentially a fast growing area of commercial banking and its contribution to our overall business is small, but we are bullish about the future," said Lewis.

The UAE was the first market in this region where HSBC launched factoring services and it is growing at a typical speed for any new product.

"In more advanced markets such as Hong Kong or Egypt, it took years to build it up to a certain level. Here, companies are reacting to factoring in a positive way, but the challenge for us is to educate the market."

Most of the bank's factoring clients are mid-market and small and medium enterprises. HSBC is clear about its target customers who have challenging balance sheets and need to raise finances.

However, the bank also services a few big companies, mainly multinationals. "Most of our factoring clients here are in the general trading business unlike the United States where factoring services are focused typically on the garment industry. In Europe and the Middle East, you can factor any type of company," he said.

Under factoring, HSBC provides financing up to 80 per cent of any invoice although the bank looks selectively at the seller's portfolio.

"Factoring can be cost-effective for companies when the balance sheet does not support traditional financing.

"Also, when a company wants to grow faster, factoring supports the growth aspirations of such a company and we do see many such companies in Dubai."

According to Factors Chain International, the largest global association of factors, around $1 trillion (Dh3.67 trillion) worth of receivables was factored at the end of 2003 of which $900 billion (Dh3.30 trillion) was domestic and $100 billion (Dh367 billion) international.

Of the total receivables factored, some 10-15 per cent was out of the Asia-Pacific region.

Lewis said Hong Kong is one of HSBC's better markets in factoring, and while the bank is upbeat on the Gulf markets, he believes it may take some time for the concept to catch on here.

"There are few banks offering full factoring in the UAE. We would like to see more players in the market."