Credit Suisse, Partners Launch Syndicated Loans Blockchain Proof of Concept

Credit Suisse and its partners launched a proof of concept aimed at creating a more efficient syndicated loan system using blockchain.

The proof of concept was launched by Credit Suisse, Ipreo and blockchain firms Symbiont and R3 CEV and will run through the rest of the year. Member banks in the R3 consortium like BBVA, Danske Bank, Royal Bank of Scotland, Scotiabank, Societe Generale, State Street, US Bank, and Wells Fargo are participating in the proof of concept. Buy-side firms AllianceBernstein, Eaton Vance Management, KKR and Oak Hill Advisors are also involved.

The proof of concept will determine ways to cut down on settlement time for a syndicated loan. It is one of the first tests using blockchain for a large multiparty syndicated loan settlement.

Emmanuel Aidoo, head of distributed ledger and blockchain at Credit Suisse, says blockchain has the ability to make the whole syndicated loan market more efficient and cut time for settlement since agent banks are connected in a network.

"We see that blockchain can automate some of the activities in a syndicated loan," he says. "All the information is on ledger simultaneously, which cuts down all the obvious inefficiencies."

Aidoo says some activities like drawdowns are tedious. Someone will put in a request to draw money from the loan and each bank has to be informed of the request, normally via fax. And since it is a manual process, each individual bank has to re-enter the information into their system, which can take some time.

The project was arranged by Credit Suisse and is managed by R3's lab and research center. It is using technology solutions from Synaps Loans, a partnership between Ipreo and Symbiont announced earlier this year. The Synaps technology provides direct access to a system of record of the loan data, which will reduce manual data entries and reviews. Symbiont said eventually all loan data processing can be done exclusively on the distributed ledger.

Aidoo says getting other participants to join the proof of concept was "relatively straightforward because we are all experiencing similar pain points."

Caitlin Long, president of Symbiont, says the syndicated loan proof of concept can help speed up settlement of syndicated loan,s which used to take up to 25 days.

"Opacity of the process was part of the problem why it took so long because there was no easy way to find out who the cause of delay is between the multiple parties," Long tells WatersTechnology. "The real value-add of blockchain is the workflow. You have a record of who's signed off on a loan."

Long says the technology provided by Synaps reduces cost and time because it can lessen the need for hundreds of people to double check records and reconcile data.

Symbiont foresees possibly licensing the technology if the full proof of concept is successful. For Credit Suisse's Aidoo, the technology will be implemented "where it makes sense" once the tests are over.

Credit Suisse has worked on other proofs of concept around blockchain including one around credit default swaps with the Depository Trust and Clearing Corp. (DTCC), Markit and four other banks as well as one around reference data that it set up with R3.