BBVA, the second largest bank in Spain (market capitalisation approximately 35 billion euros), has piloted a $150 million syndicated loan on the Ethereum blockchain, according to the Financial Times.
A Loan from Three Countries
A syndicated loan is a loan which is too big for one party to lend. By syndicating the amount, the borrower is able to take home a larger amount of money, and the lenders spread the risk of the borrower defaulting amongst themselves.
In this case, the loan was shared between BBVA, MUFG of Japan (the world’s fourth-largest bank) and BNP Paribas of France. The loan was awarded to Red Electrica, a corporation which operates Spain’s national electricity grid.
Banks rely on an antiquated, paper-based system to run this market, which is worth $4.6 trillion a year according to the FT. Blockchain technology is seen as a possible way of modernising it.
In the case of the Red Electrica loan, all information was time-stamped and secured with user codes. The signed contract was then recorded on the Ethereum blockchain. According to BBVA, this process took a couple of days, where usually it would take around a fortnight.
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Ricardo Laiseca, head of global finance at BBVA, told the FT that this system reduces costs for lenders. “Everything is automatically recorded by the system, in terms of back office and operational costs,” he said.
He also said that the pilot is to continue, with a number of other loans planned.
JPMorgan of New York operates two blockchains. In October it announced the launch of a new Ethereum-based blockchain called ‘Quorum’ which is it to be used to transact gold bars, and possibly other commodities too. It was first tested in June when the South African Reserve Bank found that it could process a day’s worth of transactions in a couple of hours.
It also operates the Interbank Information Network, which it patented in October 2017. To date, 75 major banks have signed up to use it.