Banking Customer

Banking Products and Services

The activity of the banking sector is fundamental to the functioning, growth and expansion of companies.

Banks act as partners for companies, providing financing solutions appropriate to their needs, either to invest in increasing or expanding their production capacity (e.g. medium/long-term financing or capital markets) or to assist them with treasury management (e.g. short-term credit or commercial credit).

For companies that intend to internationalise their business, banks also offer a wide range of import and export solutions, for financing or improving the safety of foreign exchange transactions, and also for managing their risks.

Learn about some of the main banking products and services designed to support companies.

Medium/Long-Term Funding

Medium/long-term funding is generally associated with the investment or expansion stage of companies, for example, the purchase of buildings or equipment. In this sense, it is common that this type of financing is associated with large financing amounts and that additional guarantees are required, in particular relating to the underlying assets.

Main advantages of medium/long-term funding

Makes it possible to match the payment of the financing with the cash flows released by the investment itself;
Does not compromise the liquidity required for the company treasury management;
The financing is generally repaid in regular instalments.

Main disadvantages of medium/long-term funding

The granting of this type of financing often requires the provision of additional guarantees;
It is mainly aimed at financing the acquisition of tangible assets (e.g. property, production equipment).

Fixed-Term Loans

Consists of a credit agreement repayable over more than one year. The financed amount is initially transferred to the current account of the company.

The repayment of these loans tends to follow a regular capital repayment plan, although there may be other ways to repay the loan.

Leasing

Consists of financing through which the credit institution (the lessor) assigns a movable or immovable asset to the company (the lessee) against the payment of a rent for a specified period with the lessee having the option to purchase the asset at the end of the term (residual value).

It is also commonly referred to as financial leasing.

Short-Term Funding

Short-term funding, as the name suggests, consists of financing with a repayment (or renewal) term of 12 months or less. This type of financing is directed towards companies’ treasury management, allowing them to meet occasional or recurring cash requirements (e.g. purchase of raw materials to fulfil a large order, average time for receiving customer payments longer than the average time for paying suppliers).

Main advantages of short-term funding

Easy access to this form of funding;
Variety of short-term funding alternatives;
Lower collateral requirements compared to medium/long term funding.

Main disadvantages of short-term funding

Less flexibility in debt service management;
Maturity (or renewal) of this type of funding does not exceed 12 months.

Agreed Overdraft

Overdraft limit on the company's current account for financing treasury needs, which allows a debit balance up to a defined amount to be maintained for a defined term.

Current Account

Short-term line of credit, which the company can manage according to its treasury needs, without a predefined repayment plan.

"Hot Money"

Very short-term funding operation (usually up to 1 month), the rate of which is negotiated on an individual basis in accordance with prevailing market interest rates plus a spread.

These operations are used for very specific and high-value needs.

Commercial Credit

Commercial credit is broadly short-term oriented but differs from short-term credit in the way that it does not provide direct granting of credit.

On the contrary, it consists of indirect financing, by advancing funds through the sale of receivables at discount (e.g. customer invoices), which helps companies to finance their working capital and/or manage customer debts.

Main advantages of commercial credit

Reduction of average receiving periods and administrative costs on invoice collection;
Consists of indirectly financing the company’s activity, and therefore does not increase the company’s level of indebtedness;
Benefits the company's treasury management.

Main disadvantages of commercial credit

Receiving funds in advance through commercial credit entails associated costs.

Factoring

This is a short-term financial solution, provided by a financial intermediary (factor), to support treasury and manage collections, and consists of the advance receipt of the invoice values that suppliers (members) have from their customers (debtors).

Funds are advanced by the prior approval of a factoring credit limit, which may cover some or all of the company's customers, and provides for the payment of interest.

Confirming

This is a payment management service whereby the customer sends the bank forward payment orders to its suppliers. From that moment on, the bank manages the entire process, informing the suppliers about the payments for which they are beneficiaries.

Suppliers may request advance payment of these amounts, up to the contracted credit limit, within the agreed term and conditions, if they wish to do so.

Bill Discount

Consists of short-term funding that allows companies to discount bills from customers, leading to an advance in funds from the respective bills.

Capital Market

Capital market funding is one of the main alternatives to traditional bank financing. It is mainly geared towards the medium to long term, but also available over the short term.

This type of financing generally involves issuing securities representing capital or debt, and may be aimed at a restricted group of investors or the market in general.

It should be noted that the coherence between bank financing and other forms of financing, such as financing through the capital market, results in benefits for both the banking sector and for companies, and the market in general.

The banking sector has a role as a financial intermediary which goes beyond simple direct financing, whether in traditional bank financing or through the capital market (e.g. through the subscription of debt securities).

Banks are also active in assisting companies to obtain financing through the capital market, with several important services being provided, such as representing companies, helping with decisions on structuring operations, registering issues, promoting the marketing of issues, guaranteeing the placement of issues, registering and depositing securities, etc.

Main advantages of capital market funding

Diversification of company financing sources;
Increasing companies' awareness of their customers, suppliers, creditors, employees and other stakeholders;
Access to large volumes of funding;
Increase in the level of capitalisation or medium/long-term financing of companies;
(Potential) reduction in the average cost of bank debt.

Main disadvantages of capital market funding

Increase in the level of information to provide to the market, with the associated costs (e.g. costs related to the regular publication of information and audits);
Costs of issuing and maintaining debt or capital instruments;
A dilution of the company's control is expected with the issuance of instruments representing capital or convertible into capital.

These are securities representing a shareholding in public limited companies which grant their holder, inter alia, the right to vote at general meetings, to receive dividends, if any, and to a share of equity in the event of the company’s liquidation.

Issuing these securities may result in an increase in companies’ equity value, benefiting their financing structure, and their financial indicators (e.g. financial autonomy).

Bonds

These are securities representing a portion of a debt, usually medium or long-term, whereby the issuing entity undertakes to repay the principal within the defined term and to pay an interest (coupon).

There are various types of bonds, which vary according to their remuneration, degree of subordination, possible conversion, among other things. The issuance of these securities is subject to compliance with previously established conditions.

Commercial Paper

These are short-term securities representing a portion of a debt, whereby the issuing entity undertakes to pay interest (coupon) and to repay the principal within the defined term.

The issuance of these securities is subject to compliance with previously established conditions.

Venture Capital

This is a form of financing for companies, especially at the development and growth stages, when companies present most investment needs.

It is common for this type of financing to take place through participation in the company's capital, with offers on the market or by raising funds from private investors.

Because of the investment in the company's capital, unlike traditional bank financing, it is the degree of success of the project/company that will decide the investors' gains from venture capital.

There are various forms of venture capital tailored to the various stages of business development, including through venture capital companies and funds.

Bank Guarantees

A bank guarantee is a credit operation whereby a bank guarantees to third parties (the beneficiaries) the performance of obligations assumed by its customers (the originators), under the terms of the guarantee.

Although the guarantee does not involve the granting of direct credit, it constitutes a potential credit, i.e. if the guarantee is enforced the bank assumes liability and then demands the repayment of that amount from the originator.

There are several types of bank guarantees for specific purposes, so their conditions also vary according to the intended purpose (e.g. term, amount, performance conditions).

Main advantages of bank guarantees

They make it easier to do business or carry out operations;
They cost less than the cost of capital or of obtaining financing;
They do not increase the company's level of indebtedness.

Main disadvantages of bank guarantees

Although it does not consist of a form direct lending, the amount of the guarantees is considered for the level of credit involvement with the respective bank.

Payment Guarantee

This is intended to guarantee the repayment of financial obligations (whether generated by a credit operation or not).

Performance Guarantee

This is intended to guarantee compliance with obligations or facts assumed by the customer towards third parties (e.g. contract for the supply of goods or services, infrastructure works).

Import/Export Solutions

International commercial transactions, whether imports or exports of products or services, involve several risks (e.g. credit risk, political risk, exchange rate risk). In this regard, banks offer various solutions that companies can use to finance the necessary international commercial transactions, but also to mitigate the associated risks and ensure their success.

Main advantages of Import/Export solutions

They increase the degree of security of the commercial transaction, both for the importer and the exporter;
They increase the ease of obtaining credit, as there is a transaction in progress;
They may allow exchange rate risk to be reduced by taking out related financial products.

Main disadvantages of Import/Export solutions

They may be difficult to understand (e.g. operations involving several steps and possibly several intermediaries).

Documentary Credit

This consists of an irrevocable commitment by the issuing bank which, acting on the instructions of an importer (originator), is obliged to make a payment – on demand or term payment – to an exporter (beneficiary) or on its behalf, on submission of documents in accordance with the terms of the letter of credit.

In situations where the exporter is not comfortable with the risk associated with the transaction (e.g. political risk in the region where the importer and the issuing bank are located), the documentary credit may be confirmed by the exporter's bank (confirming bank), which assumes joint liability for the transaction with the issuing bank.

In this way, the confirming bank assumes the guarantee of payment by confirming letters of credit, and allowing the advance of receivables on exports to be made.

Foreign Trade Financing

Foreign trade financing, for goods or services that are imported or exported, may take various forms, including, for example, financing the import of goods and/or services in the order stage, postponing the respective payment, or financing associated with the advance of export revenues already achieved.

These operations, which are usually short-term, may be conducted in foreign currency in order to cancel out the exchange rate risk involved.

Documentary Remittances

These are instructions given by an exporter to its bank to send financial documents for payment by the importer, through the latter’s bank, which then collects them.

It is therefore intended for companies that carry out exports and need to make collections abroad, in situations where the importer is trusted, since in general the exporter sends the remittance after the goods have been shipped.

Forfaiting

This consists of selling receivables at discount (particularly in the form of documentary credits) without recourse against the exporter. This solution is generally geared towards the medium/long-term, and helps companies (importers and exporters) with treasury management in foreign trade transactions.

The bank makes a cash payment to the exporter, which allows the exported goods to be financed, while allowing the importer to make the prepayment (and/or instalments) for the imported goods.

Risk Management

In addition to banking products aimed at companies, that are designed to directly and indirectly finance their activity, the banking sector also has products that are designed to manage the financial risks arising from companies’ activities.

Among the most common products in this category are those aimed at mitigating exchange rate risk or interest rate risk, allowing companies to have a higher degree of confidence in the future cash flows of a particular transaction, regardless of fluctuations in exchange rates or interest rates.

Main advantages of risk management solutions

Increases the certainty of net flows arising from a particular transaction;
Ensures that companies are protected from market volatility.

Main disadvantages of risk management solutions

They may involve losses that exceed the investment amount (usually small in these operations);
They involve a significant degree of complexity;
They may not be accessible to all companies.

Foreign Currency Financing

Financing granted, as the name suggests, in foreign currency, so the interest rate used is usually the interest rate associated with that currency. It may be used in foreign trade operations, in particular in situations involving the export of goods or services and a future payment.

Foreign Currency Deposits

Deposit, as the name indicates, in foreign currency, where the interest rate used is usually the interest rate associated with that currency. It may be used in foreign trade operations, in particular in situations involving the import of goods or services and future payment.

Exchange Rate Forwards

This consists of a financial derivative in which a forward exchange rate is fixed at the initial point in time for a given reference value (nominal value).

Interest Rate Swaps

This consists of a financial derivative in which interest rate flows are exchanged for a given term and reference value (nominal value).

It is common for this product to be used to exchange a variable interest rate for a fixed interest rate, ensuring that, together with a (variable rate) loan with the same amount, term and repayment conditions, the net interest payable remains fixed, regardless of the volatility of market interest rates.