An overwhelming majority of European banks are experiencing growth in demand for supply chain finance, claims a new report by financial consultant Demica.

More than 90% of 40 banks surveyed claim the demand for supply chain financing is “very strong”, with some banks reporting a doubling of volumes since the beginning of the global financial crisis.

During the last two years, a number of supply chain finance products have come to the market as a reaction to corporates and their banks looking to free up cash flow in the supply chain while reducing risk.

This is achieved by large buyers extending payment periods and suppliers receiving payment quicker, as well as a number of other bonuses such as suppliers benefitting from the credit rating of their debtors to secure funding.

Some banks reported that suppliers are saving between 3% and 4% on their cost of borrowing by participating in supply chain financing programmes.

European banks are expecting the growth of supply chain finance to replace the decline in letters of credit issued.

“The last few years have seen supply chain finance programmes grow from a product to a market.”

“The last few years have seen supply chain finance programmes grow from a product to a market in the eyes of corporates and their tier 1 banks,” says Phillip Kerle, chief executive at Demica.

The greatest demand for supply chain products comes from the manufacturing, retail, automatic, mechanical engineering and food production companies, according to the Demica report.

“However, more modest demand levels are also expected from sectors such as pharmaceuticals, technology and telecoms,” Kerle adds.

International banks hired across supply chain divisions during 2010, with HSBC leading the charge by announcing the appointment of four new senior staff to its European supply chain team in December alone.