Credit Suisse and the R3 blockchain consortium are driving a new initiative to apply distributed ledger technology to overhaul antiquated and costly manual intervention in the $3 trillion global syndicated loans market.
The Swiss bank is working with Synaps Loans, a joint venture created earlier this year through a partnership between smart contract vendor Symbiont and loan settlement platform provider Ipreo, on a proof-of-concept which will run through the end of the year.
Early stage trials among a number of agent banks, service providers and fund managers have already proved the potential of the technology, says Credit Suisse. Participants in the project included R3 consortium members BBVA, Danske Bank, Royal Bank of Scotland, Scotiabank, Société Générale, State Street, US Bank and Wells Fargo. Buy-side firms AllianceBernstein (AB), Eaton Vance Management, KKR and Oak Hill Advisors are also involved in the initiative.
“This project demonstrates the potential for blockchain technology to fundamentally reshape the syndicated loan market and the capital markets more broadly,” says Emmanuel Aidoo, head of the distributed ledger and blockchain effort at Credit Suisse. “This demonstration sets us on a path to increase efficiency and reduce costs, which will benefit banks and clients alike. By connecting a network of agent banks through blockchain, we can achieve faster and more certain settlements in the loan market.”
Settlement periods of 20 business days or more threaten the continued growth of the loan market. Syndicated loans have a record unsettled exposure of more than $70 billion, over twice that of high-yield bonds. For the sell-side, the delays tie up precious capital. For the buy-side, settlement uncertainty confounds cash management and necessitates costly credit lines.
Through Synaps, loan investors have direct access to an authoritative system of record for syndicated loan data. This yields immediate savings by reducing manual reviews, data re-entry and systems reconciliation. In the future, loan data processing can be done exclusively on the distributed ledger, the firm believes, eliminating the cost for each market participant to maintain its own separate lending system.
“There’s been a lot of hype around how distributed ledgers will drive efficiencies in the syndicated loan space,” says Robert Berk, SVP and chief operating officer, US Bank Capital Markets. “We’re excited to prove the technology works with players throughout the loan ecosystem to truly understand its value."