GTR Trade Finance eNews - October 2011
Viewpoint November 02, 2011
A breakthrough
Amid the chaos engulfing the rest of the financial world, the trade finance market may have just been thrown a life ring, writes GTR editor Rebecca Spong.
The foundations of the global economy are being battered once more. Eurozone leaders continue to grapple with their worsening debt crisis; banks are facing rising cost of funds and a drying up of US dollar liquidity; and across the globe people are railing against proposed cuts to public sector spending while the “Occupy” protests are attacking the very concept of capitalism.
In recent months, even those working in the relatively safe and stable trade finance markets have voiced concerns that they are unable to close as many deals as quickly as they may like due to the escalating cost of funds.
Trade finance did enjoy a renaissance of a kind during and after the 2008-09 crisis; with traditional relatively low risk trade finance products rising in popularity among banks.
Yet 2011 has not been as successful a year for trade finance as one might hope.
Dealogic tables for the first nine months of 2011 reveal that global trade finance volumes reached US$114bn, which is down 6% from the US$121.1bn recorded in the same period in 2010.
The drop in trade finance activity was particularly acute in the third quarter of this year, where volumes reached US$40.4bn, a 29% fall from the third quarter 2010.
A proportion of this drop could be put down to a variety of factors; the deteriorating Eurozone crisis, the Arab Spring, the slowdown in economic growth across the globe.
Yet many market observers agree that the biggest threat to the long-term future of trade finance is the proposed Basel III regulations.
The regulators intend to stabilise the banking system and avoid another financial crisis, but it is thought that the regulations have unintended consequences by demanding that disproportionate amounts of capital to be put aside against trade finance assets such as letters of credit.
It is argued that such a requirement would make trade finance a more expensive and less competitive product.
A breakthrough
Yet there have been some significant breakthroughs in terms of the negotiations with the Basel Committee and getting the correct capital treatment for trade finance.
In late October, the Basel regulators announced that they would adjust some of the means in which the new Basel III capital requirements are calculated, although they have completely rejected other requests put forward by industry bodies.
Here’s what the committee have decided:
Basel III Rulings
The Basel Committee has decided to:
• Waive the one-year maturity floor on certain trade instruments (letters of credit) under the AIRB system for credit risk.
• Waive the so-called sovereign floor for certain trade finance claims on banks using the standardised approach for credit risk.
The Basel Committee has NOT decided to:
• Change the 100% credit conversion factor used to calculate the leverage ratio for contingent trade finance exposures.
• Change to 20% CCF under the risk-based standardised and foundation internal ratings-based approaches.
Reaction to the Basel Committee’s decision has been mixed.
The International Chamber of Commerce (ICC) has said that although it is “pleased” that the Basel Committee has announced measures that reflect the low risk nature of trade finance, it argues that there is still opportunity to “refine” the rules.
“It is crucial that the cost of capital between a low-risk low margin activity like trade finance is differentiated from higher risk higher margin activity,” notes the ICC Banking Commission chair, Tan Kah Chye.
“We have narrowed the gap today and there is an opportunity for us to do more through continuing dialogue. We believe that banks and Basel have a responsibility to develop a robust banking environment to create jobs through trade.”
What do you think? Have the decisions been fair? Has the Basel Committee made the wrong decision?
Reed Smith expands ENR offering
Law firm Reed Smith has launched an expanded energy and natural resources group to respond to what the firm says are important drivers of the global economy.
Saudi smelter attracts next phase funding
Saudi Arabian mining firm Maaden has brought in more than a dozen financial institutions to fund the second phase of its US$10.8bn aluminium joint venture with metals multinational Alcoa.
Asean bank in talks
Reports this week suggest that China is currently considering a proposal to form a regional bank in order help its small and medium enterprises invest in Southeast and Southwest Asia.
Industry says Basel changes need to go further
The Basel Committee has not gone far enough in its review of trade finance under incoming regulations, say prominent industry figures.
Trade bankers enjoyed one of their first wins in their battle against Basel III this week as the committee announced plans to waive the one-year maturity floor for letters of credit and to waive the sovereign floor for certain trade finance-related claims on banks.
StanChart promotes Asia heads
Standard Chartered has made two promotions within its transaction banking global sales team.
ANZ forecasts Rmb boom
By the end of 2012, 20-25% of China's trade will be denominated in renminbi, ANZ head of offshore RMB services and sales, Steve Kelly told corporates and GTR at an ANZ seminar in mid October.
Germany gets top billing for Taiwan renewable
Taiwan is set to get a new 57.9MW onshore wind farm from a syndicate led by German banks and with the backing of Euler Hermes.
Basel III backs down on trade finance
Trade finance bankers are enjoying a win in their battle against incoming regulations as the Basel Committee agreed to change some of its proposals.
The committee has agreed to waive the one-year maturity floor for certain trade finance instruments under the advanced internal ratings-based approach for credit risk.
This was potentially an enormous problem for trade bankers, as the most commonly used trade instrument has a 180-day maturity.
ABN Amro expands ECT business
ABN Amro has opened a new office in Dallas for its energy, commodities and transportation business.
Donna Alexander leaves Baft-IFSA
The chief executive officer of banking association Baft-IFSA Donna Alexander is stepping down from her role and leaving the company.
Denmark gains milestone public private partnership
Denmark’s export credit agency EKF and one of the country’s largest blue-collar pension funds PensionDanmark have teamed up to provide DKr10bn liquidity for the export market.
Banque Du Caire chooses new CEO
HSBC Egypt managing director Mounir El Zahid has left his post to join Banque Du Caire as chairman and chief executive officer.
ECAs take cautious approach on Syria
Belgium’s export credit agency ONDD has downgraded its political risk classification for Syria.
HFW hires shipping partner
International law firm Holman Fenwick Willian has hired Simon Chumas as partner in the firm’s shipping practice.
US Exim boosts Nigeria’s power output
The Export-Import Bank of the US and the Nigerian ministry of power have signed an agreement to increase the power output in Nigeria by ten-fold by 2020.
Delta Trade Finance hits the rocks
Boutique China-focused factoring firm Delta Trade Finance has run into challenges, with some sources claiming the firm has stopped trading all together.
Insurance broker opens risk division
Insurance broker Newman Martin and Buchan (NMB) has appointed industry veterans Rupert Cutler and Rob Hough in its newly-formed financial and political risk division.
Baker & McKenzie recruits LatAm partner
Ricardo Martinez has joined Baker & McKenzie as partner in its New York office.
Miller snaps up insurance veteran
James Cunningham is will join UK insurance and reinsurance broker Miller in the Spring next year.
HSBC Australia adds banking head
HSBC Australia has promoted James Hogan as head of its commercial banking group.
Mena trade predicted to soar
Egypt has been singled out to experience the fastest growth in international trade volumes by 2025, according to a new report.
EBRD says emerging Europe growth in mire
The EBRD has negatively revised its growth forecasts for emerging Europe but the CIS is still promising strong economic prospects.
CBD launches factoring services
The Commercial Bank of Dubai is teaming up with Coface’s Middle East business to expand its trade-related portfolio by offering factoring services.
CNH and De Lage Landen improve Russian scheme
Agri and construction equipment firm CNH Global and Rabobank subsidiary De Lage Landen have moved their relationship into Russia to provide a financing programme for equipment purchases.
Deutsche names China head
Deutsche Bank has appointed Frank Wu as head of trade finance and cash management, corporates for Greater China.
UK trade deficit narrows
The UK’s trade deficit has fallen for the first time this year, as quantitative easing measures help to spur on trade.
US Exim sees infrastructure powering global recovery
Infrastructure demand will power the global economy out of its slowdown, according to US Export-Import Bank chairman and president Fred Hochberg.
Speaking to GTR, Hochberg notes: “The amount of infrastructure that’s being put into place globally is at a level we’ve never seen. It’s something that can really help power up this global recovery.”
Hochberg’s forecast comes as the US export credit agency announced a record-breaking year for the bank.
Stemcor pulls in oversubscribed revolver
Steel trader Stemcor has oversubscribed its year-long annual revolving credit facility to attract US$205mn in funds.
Norilsk prepares syndication
Russian metals producer Norilsk Nickel is looking to tap the syndication market for a US$1.5bn five-year pre-export finance facility.
UPDATE: Ko\x{e7} T\x{fc}pras closes syndication
Turkey’s Koç Tüpras has closed its US$2.1bn syndicated loan facility with a consortium of 10 international banks.
Sberbank secures WestLB funds
Russia’s Sberbank has secured a four-year US$50mn loan from WestLB for trade-related purposes.
JBIC invests in Aussie LNG
JBIC is co-financing a US$175mn loan with private institutions to fund an LNG project in Queensland, Australia.
Supply chain growth prospects slow
The number of European banks that believe supply chain finance growth prospects remain strong has dropped since 2010, according to a new report.
New report predicts future TF growth
World trade volumes will grow by 73% by 2025, according to a new report.
Despite the current economic climate and a downturn in confidence in the short term, trade is expected to grow by 2% year-on-year until 2015.
This is a volume increase of approximately 8% with international trade activity growing, on average by just under $1trn a year between now and 2015.
US Exim signs Tajikistan first
The Export-Import Bank of the US is backing its first transaction in Tajikistan following the signing of a US$80mn loan to Somon Air.
JP Morgan adds to Asean treasury team
JP Morgan continues to expand its Asean treasury team with the appointment of David Koh as head of treasury and securities services for China and Greater China.
Finacity arranges receivables programme
Styrenics supplier Styrolution Group has launched a €500mn global trade receivables securitisation programme to provide an additional source of funding for its operations.
Trade finance falls short in 2011
Dealogic’s latest results reveal that global trade finance volumes have dipped by 6%, while Brazil and Turkey have generated the highest number of deals.
Kinloch set to join AfDB
After leaving his post at the African Trade Insurance Agency in August, Stewart Kinloch is set to join the African Development Bank as a consultant.
AFC signs Cote d'Ivoire first
As Cote d’Ivoire recovers from its recent conflict, Africa Finance Corporation has provided some much-needed support by signing its first transaction in the region.
Siemens wins Danish support
Siemens wind power has received an €822mn debt financing facility from a group of international banks to finance an offshore wind farm off the coast of North Germany.
Norton Rose completes Canadian merger
Norton Rose will merge with Canadian law firm Macleod Dixon as of January 1, 2012.
UPDATE: Rusal signs jumbo PXF
Russian aluminium producer Rusal has closed its oversubscribed US$9.33bn syndicated pre-export finance facility.
Insurance broker RSG makes acquisition
Insurance broker Ryan Specialty Group has acquired specialist Lloyd’s insurer Jubilee.
HFW recruits for Brussels and Geneva offices
International law firm Holman Fenwick Willan has hired partners Folkert Graafsma and Matthew Parish to its Brussels and Geneva offices respectively.
Viewpoint October 12, 2011
Zambia copper, China woe
Big moves in Zambia are causing headaches in China. Senior Reporter Michael Turner writes.
In politics, making big moves at the start of a term can give voters time to forget about them when re-election comes around if they go wrong, or let you trumpet them as bold achievements if they go right. At least, that’s one way to explain the moves of Zambia’s new president, and former porter in London’s Victoria train station, Michael Sata.
At the start of October and only two weeks into his role, Sata put the brakes on the US$5.4mn sale of Finance Bank Africa to South Africa’s FirstRand and fired his central bank’s board. A handful of other government bureaucrats were also given the boot.
For exporters, the big shock came when the president suspended metal export permits from Africa’s largest copper producer. This suspension has now been lifted, but its legacy is still causing headaches.
On the face of it, there are only a few government intervention clauses that have been added, such as all exports must now be cleared by the central bank, officials told Reuters. Furthermore, there’s a chance that taxes might go up.
But there are other problems that look like they will take longer to go away. Sata was widely known for his strong rhetoric before election, earning him the nickname of King Cobra. A lot of this rhetoric was aimed at Chinese companies, with their US$2bn investment into Zambian mining, for behaviour that he saw as unfairly exploiting Zambian minerals and workers.
This idea has merit. For all of the investment into Zambia, around 60% of the population live in poverty with a disturbingly-high 37% considered in extreme poverty, according to the World Bank. This suggests that while some are making money from Zambia’s copper, it almost certainly isn’t Zambians.
China’s challenges grew Sata said that foreign firms must do more to respect Zambian labour laws, reduce the number of expats in mines and improve working conditions.
Sata’s rhetoric seems to have rubbed off on his people; a spontaneous and non-unionised strike erupted at the Chinese-owned Chambishi copper mine on the Copperbelt, when Zambian miners demanded higher pay, no doubt buoyed by Sata’s words, even if not his direct consent.
President Sata is playing a dangerous game. It is right for a leader to want better for his people, but evoking non-negotiated strikes, even indirectly, is not the way to encourage continued investment from international sponsors.
Hopefully, being leader of the most copper-abundant country in a continent packed with underground goodies will be enough to make Chinese firms look past these hold ups and let Sata fight for the balance his country needs.
For last week's Viewpoint, click here.
Viewpoint October 5, 2011
GTR Deputy Editor Shannon Manders reminds us all that forecasts are something to be cherished (and then forgotten about before they’re proved horribly wrong).
Blast from the past
The future of trade finance looks increasingly unpredictable: the Basel Committee is set to present its recommendations in November, the eurozone crisis remains a key concern, and the impact of sovereign downgrades are spreading into the trade finance market.
Now more than ever there is a growing need to have a degree of foresight into what the future holds. Historically, the industry has relied on rating agencies, industry experts and the media to provide forward-looking insights as to what we can expect to see. But even the most experienced of us tend to get these predictions wrong....
In the spirit of comparing old and new, we at GTR have enjoyed a retrospective overview of some of our past issues, to compare what experts were saying back then, to what we know to be true today.
[When referring to regulations] “The current frameworks are by and large effective,” said one trade finance banker in early 2007, naturally oblivious of the proposed Basel III regulatory requirements on bank liquidity and leverage.
“I would describe Kazakhstan as a real success story, because we have capitalism but with oriental features. Yes we still have corruption, but overall the growth is obvious,” assumed a banker in 2007, blissfully unaware of the impending troubles for Kazakh banks…
“Clients only want to insure exports made to the worst buyers,” a broker complained in the pre-crisis heyday of 2006.
“It is, frankly, bogus and self-serving for ECAs to argue that only they can service the SME sector,” said an industry expert in 2003, who could not have foretold the sudden increased need for ECAs in the years to come, nor how many of them now strive to finance SMEs.
“Global credit quality has seen moderation in the current year, with a steady deceleration in the share of downgrades to total rating actions each quarter,” read a 2004 report released by a rating agency, which could not have known about the looming downgrade of the US top-tier credit rating.
In early 2006, a member of GTR’s editorial staff described trade finance as being as “safe as houses”, forgetting, of course, that trade deals do sometimes go wrong…
Are any of your trips down memory lane similarly incongruous with what you’re seeing in the market today?
Falcon names Americas director
Boutique finance company Falcon Group has appointed Juan Carlos Uribe as its regional director for the Americas.
Chartis hires to trade credit role
Insurance firm Chartis has brought in industry veteran Will Clark to replace Neil Ross following a promotion.
Barclays adds FI trade head
Barclays Corporate continues to grow its trade finance team and financial institutions business with the appointment of Shona Tatchell as head of FI trade sales.
Yapi Kredi continues show of Turkish strength
Turkey’s Yapi Kredi has managed to pull in the equivalent of US$1.2bn in its annual syndicated loan with slightly more favourable terms compared to last year’s pre-eurozone crisis deal.
VEB wins German funding
Russia’s Vnesheconombank has signed a €48mn loan with Deutsche Bank and Euler Hermes to onlend to German exporter Wehrhahn.
