First Blockchain loan closes in Latin America amid transparency concerns


NEW YORK, Dec 13 (LPC) – Brazil’s Itaú Unibanco completed Latin America’s first-ever club loan through a blockchain platform this month, and while the transaction paves the way for the region’s banks to test the ledger technology, doubts linger over its transparency. Itaú’s US$100m proof-of-concept loan, provided by Standard Chartered and Wells Fargo, utilized the R3 Corda Connect blockchain platform, a paperless system that allowed the banks to assess revisions, comments and approve the club loan digitally. Moves to ingratiate the emerging financial technology in Brazil began when the country’s central bank in 2017 started testing four blockchain platforms – Ethereum, Quorum, HyperLedger Fabric and Corda – in a bid to service a population turning towards greater cell phone usage for remittances and mobile payments. The central bank also announced in June that it built a blockchain platform to share data between itself and other domestic financial regulators such as Brazil’s Securities and Exchange Commission. Globally, the blockchain phenomena has progressed. In November, Spanish electricity grid operator Red Eléctrica de España signed the world’s first blockchain-based syndicated loan, a €150m (US$170.5m) five-year line of credit with BBVA, BNP Paribas and MUFG. Spain’s BBVA in April was also the first international bank to complete an end-to-end loan using blockchain, while in Brazil this year, two online payment service providers, PagSeguro and StoneCo, listed on the New York Stock Exchange and Nasdaq, respectively. Blockchain lending in concept aims to lower transactional fraud and administrative costs, but the market remains wary over the system’s lack of transparency, particularly among compliance requirements such as know your customer (KYC) and anti-money laundering (AML) perspectives. INCHING ALONG It may take some time before more blockchain loans start populating the region. The banking industry is subject to greater scrutiny from financial regulators than other sectors of the economy making it cumbersome for banks to adopt new technologies. “Perhaps the main challenge is educating the business areas to use upcoming technology,” said Ricardo Nuno, managing director for treasury at Itaú Unibanco, adding that another challenge was supplanting tried-and-tested technology with blockchain-friendly software and hardware. Large-scale banks’ own internal credit committees also rely on paper trails that determine how deposits move. “The technology may not be a hindrance, but it is more the diligence involved in a sector where default or risk ratios might be higher,” said Evan Koster, a partner at law firm Hogan Lovells. Banks’ conservative and profit-driven approach to lending is another factor holding them back from investing more in blockchain, according to Nathan Lustig, a managing partner at Magma Partners, a seed stage investment fund based in Santiago, Chile. While banks might be slower to pick up blockchain technology, smaller-sized tech firms such as Ripple or RootStock, which is a bitcoin blockchain platform, could serve as ideal partners for risk-averse banks, said Lustig. “Companies that provide the infrastructure for blockchain platforms can move beyond being just exchanges and could create blockchain products,” said Lustig. Itaú, Brazil’s largest lender by assets, formed a partnership agreement with R3 in 2016 and in February this year, the bank agreed to work with Ripple. Fellow lender Bradesco teamed up with Japan’s MUFG and the pair in November signed a memorandum of understanding with Ripple to use its blockchain network for payments between Brazil and Japan. For Itaú, the maiden club loan was organized in a safe and agile way, according to Nuno, who lauded the efficiency of the technology. But he said the blockchain platform needed adjustments and “further analysis” before introducing the technology into the broader banking market. “To be more widely used it is essential that banks and other participants have more clarity on issues,” said Nuno, citing, as an example, whether signed electronic contracts were enforceable in a legal dispute. (Reporting by Aaron WeinmanEditing by Michelle Sierra and Chris Mangham)
Read More