Jason Zammit, Senior Vice-President, Head of Marketing at FIMBank discusses the development of trade finance, and how FIMBank is strongly geared to deliver customised trade finance solutions.
What are the key components in the successful execution of a trade finance transaction?
Zammit: Trade finance helps settle the conflicting needs of the exporter and the importer. An exporter needs to mitigate the payment risk from the importer, and it would be to their benefit to accelerate the receivables. On the other hand, the importer wants to mitigate the supply risk from the exporter, and it would be to their benefit to receive extended credit on their payment. The function of trade finance is to act as a third party to remove the payment and supply risk, whilst providing the exporter with accelerated receivables, and the importer with extended credit. It can be considered as being quite a precise science, managing the capital required for international trade to flow, yet within this science there is a wide range of tools at the financier’s disposal, all of which determine how cash, credit, investments and other assets can be utilised for trade. Essentially, the key components to execute a transaction which meets these objectives would be those which ensure the effective identification of risk and mitigation through documentary controls.
What is the typical profile of a trade finance client?
Zammit: A typical client for a trade finance solution is a trader looking to use UCP-compliant structures to facilitate trade and working capital flows without relying solely on the balance sheet. Most are unlisted and family-owned, and tend to specialise in specific commodities and geographies. SMEs provide an important customer-base, as many realise that their growth relies on more working capital and better cash flow management. This allows them to keep control of the day-to-day running costs of the business, whilst growing and fulfilling larger orders that ordinarily wouldn’t be possible. There are of course larger global traders, who are often listed, which operate all along the value chain from production to last-mile distribution.
How is FIMBank geared to provide tailor-made trade finance solutions?
Zammit: FIMBank is exclusively focused on trade finance solutions. Our team of bankers understands the lifecycles of various commodities and regional trade dynamics. They can structure solutions catering for every part of the value chain in various markets, offering pre-shipment, storage and post-shipment financing solutions. The use of collateral management structures and credit insurance allows risk mitigation to optimise the usage of balance sheet recourse. Our operations team specialises in handling documents under structured trade, across geographies, to ensure smooth execution. The experience and specialised expertise of our management team, and our international know-how, make us a reliable partner in delivering quality in a rapid fashion. We also understand that such deals require timely execution, and our collective experience, together with our systems, are designed to guarantee speed, excellence and efficiency. When enquiring and working with such a specialised and dynamic service such as trade finance, it is paramount to discuss your requirements with specialists who can tailor a service accordingly depending on your specific needs. When a customer engages FIMBank to deliver a trade finance service, whether import or export-related, they can rely on efficient and highly personalised solutions.
What are the ancillary services that FIMBank offers to the benefit of trade finance clients?
Zammit: FIMBank offers global cash management, multi-currency accounts, and a state-of-the-art digital banking suite supporting trade transactions. The delivery of FIMBank’s services is facilitated by FIMBank Direct. It is an outline of the bank’s commitment to provide an enhanced banking experience to its customers, based on a secure and reliable infrastructure built to support international settlements, foreign exchange transactions and fixed term deposits. In addition to this, FIMBank continuously invests in a strong correspondent banking network, supported by highly reputable institutions, allowing the bank to sustain a strong service delivery through its dedicated US dollar settlement and forex offering.
What is the role of trade finance in FIMBank’s overall operation?
Zammit: The trade finance portfolio is the largest within the overall business lines at FIMBank. Over the years, the bank has built a reputation as a leading provider of trade finance, factoring and forfaiting solutions, with a global presence in various important financial and trading centres. FIMBank is today recognised as a customer-driven provider, focused on optimising business performance and supporting growth by developing tailor-made trade finance solutions that provide exporters with accelerated receivables and importers with extended credit. The bank is also at the forefront of introducing and developing innovative receivable finance techniques in emerging markets.
How is new technology such as blockchain and crypto-currency affecting trade finance? Can you identify any positive impacts arising from the use of these innovations?
Zammit: This space is still evolving and we are closely monitoring relevant developments. Global standardisation along the lines of SWIFT or UCP protocols would be very helpful to drive wider adoptions of usage of blockchain in supply chain trade finance. Currently, most efforts are standalone or of the nature of closed-user groups.
Do you see a growing awareness of trade finance? Are more clients seeing it as an attractive alternative form of financing?
Zammit: The simple answer is yes, and this is because trade finance creates opportunities for everyone, which is good news in a world where trade benefits are not shared evenly. If you ever decide to create your own enterprise and distribute your product abroad, or you just simply want to access a wider range of products, then trade finance can offer the right solutions.
There is greater awareness that trade finance can offer a financing mechanism that is essential to bridge the time lag between a product’s shipment from one market and its arrival and inspection in another. Reducing this delay helps build trust and minimises many of the risks arising from such complex transactions, such as a lack of timely payment, exchange rates and the deterioration or loss of goods and services.
Trade finance solutions are also seen to be effectively supplementing balance sheet-based financing solutions for many markets. This is particularly so as interest rates rise, liquidity tightens and structured solutions, which are balance sheet light, become more attractive.
What are the current challenges facing operators in trade finance?
Zammit: Key challenges revolve around the enforcement of the title on goods in various jurisdictions. Trade products allow borrowers to use the underlying goods to secure the financing, thereby enhancing return and reducing reliance on other collaterals and balance sheets. However, if issues of enforceability on title become a major issue and loss in the case of default even is total, banks will find it difficult to rely on such security to finance transactions.