Over the last twelve months we have seen a sustained pick-up in inflation that has led, in the case of Spain, to the annual rate of change of the CPI standing at 8.7% in May 2022. Behind the rise in the CPI is the escalation in the price of electricity and petrol, which in turn has a direct impact on the price of basic consumer goods, such as food.
The role of central banks in this situation.
The main mandate of central banks is to monitor price stability, i.e. that inflation does not get out of control. The main tool they have to fulfil this mandate is interest rates: when inflation rises, they raise rates to contain the generalised escalation of prices and thus prevent the cost of living from getting out of control and impoverishing the population, either through excessive inflation (hyperinflation) or through a fatal combination of escalating prices and shrinking growth (stagflation). This is the policy currently being pursued by the US Federal Reserve, which recently communicated the largest rate hike at a meeting in 22 years. Now, the European Central Bank (ECB) has sent the message that it could start raising eurozone interest rates in the coming months.
Interest rates indicate the theoretical price of money. They are the benchmark for setting all kinds of financial indices and costs, from the yield on Spanish bonds to the Euribor or the APR of a loan for an SME. Therefore, higher interest rates lead to higher financing costs. After a decade of ultra-low rates, banks are now more than willing to start raising the costs they pass on to their customers, be they companies or individuals, and thus start improving their profit margins.
Confirming, an alternative to credit tightening.
Given the rising cost of financing and the tightening of the conditions for obtaining a loan, more and more companies are looking for financing channels outside the banking sector to ensure access to liquidity for their operations. In this context, non-bank confirming is an attractive option for SMEs and large companies, as it provides liquidity to the supplier without impacting the CIRBE in a secure manner, among other advantages.
Finalbion provides this service in a fully digital way through our technology platform, with which we have provided more than 1,000 million euros in financing to more than one hundred business groups in Spain. You can learn more about our platform through our Supplier Guide.