BBVA says he recently completed the first syndicated loan on a distributed ledger. Could this pilot look at the syndicated loan of the future?
The borrower, Red Electrica, is an energy distribution company based in Spain. The company required $ 150 million for unspecified "general business purposes". BBVA participated in MUFG and BNP Paribas to participate in the loan.
Normally when several banks participate in a large loan, it takes at least two weeks for counterparties to agree on terms, said Ricardo Laiseca, head of global finance at BBVA corporate and investment banking.
"Every time you invite more banks, it becomes more complex," said Laiseca. "We thought blockchain technology was the right technology to improve that complexity, because it helps you communicate efficiently and reduce the time it takes to reach an agreement from two weeks to a single day."
The banks use the distributed distribution technology developed by BBVA, a private block based on Hyperledger, to manage the loan contract from the borrower's loan request to sign the syndicated loan documentation.
All related documents are stored on the blockchain, including the borrower's request, a term sheet and the final loan contract. Each phase of the negotiation leading to the signature of the final agreement is recorded on the ledger distributed along with a user code and a time stamp that identifies the moment in which the event occurred. All parties (in this case the three banks, Red Electrica and two law firms, Linklaters and Herbert Smith Freehills) have access and share the same information on the negotiation process and are therefore equally informed about the status of the loan.
In addition to saving everyone time, the distributed ledger guarantees transparency, according to Miguel Castillo, head of Spanish global clients at BBVA.
"All participating banks know where the process is at a given time," he said. Within BBVA, people in the legal, credit and other departments can see all transactions.
"In the end, it confers greater integrity to the whole process in terms of transparency," said Castillo. No information is lost and there is less room for errors and misunderstandings because everything is recorded on a shared ledger.
When the agreement is completed, a document identifier is created and encrypted; this is called hash and is recorded on the Ethereum public testnet. This is intended to ensure its immutability towards third parties while safeguarding confidentiality.
"We chose it as a large and recognized public blockchain where we can record the hashes of the actions we accept between the banks and the company," said Castillo.
BBVA plans to make more loans to European customers on its blockchain in the coming weeks. At the start of this year, he made a loan to Indra, a technology company based in Madrid, using its blockchain to reckon.
Customers do not benefit directly from the use of the blockchain. But some customers, including Red Electrica, are undergoing their own digital transformations and blockchain proof of concepts, and are therefore willing to test the technology with the bank to advance their innovation and understanding goals.