SMBC’s Global Trade Finance Department spans all forms of trade and export finance and provides a global platform across 32 individual locations. Structured Export Finance sits within the department but its activities span across trade, project and asset-based finance markets. Jonathan Joseph-Horne, Global Co-Head of Structured Export Finance, provides an overview of SMBC’s activities in trade and export finance.
Q: Structured Export Finance sits as a product line with SMBC’s Global Trade Finance Department. What is the rationale for locating export finance within the bank’s trade finance department?
Joseph-Horne: All banks define trade finance differently and some will include products like export finance within their trade finance or transaction banking departments while others will place them elsewhere. There are no right or wrong answers as the reality of the product is that in most organisations it will touch many different sectors and areas of activity – indeed for those lucky enough to work in the industry, this variety tends to be one of the major attractions! The important thing is to have a consistency of approach and the ability to serve clients no matter where an export finance team is located within a bank. I think this is something that SMBC achieves well. Within our global trade finance department we adopt a region and product matrix approach. We have four broad product lines: documentary trade and trade loans, supply chain finance, structured trade and commodity finance, and structured export finance. We deliver these product lines on a global basis through regional hubs in London (which is also the global headquarters for SMBC’s trade finance business), Tokyo, Singapore, Hong Kong and New York and a wider network of local offices. In total we have 32 trade finance locations globally ranging from interesting developing markets like Ulaanbaatar and Lima through to established trade and export finance hubs like Paris, Beijing and Seoul.
In addition to the structured export finance team’s role as a product line within the bank’s trade finance department, the team also includes key individuals located within other important departments such as SMBC’s project finance departments. This is a very important element of the bank’s approach to structured export finance as it creates a genuinely global platform and positions SMBC as an export finance bank able to support all the major export finance asset classes of project finance, asset-based finance, corporate, sovereign and financial institution-based finance. The ability to support the bank’s project finance and asset-based activities – both areas where the bank enjoys a leading reputation – is a cornerstone of the cross-department team structure we have created.
Q: What synergies do you see between export finance and trade finance?
Joseph-Horne: One of the trends we see in both export finance and trade finance is the breaking down of barriers between products. We see this as a positive trend that is being embraced by borrowers, suppliers and agencies. For example, we see interesting short-term export credit agency (ECA) deals involving typical trade finance products like letters of credit and working capital finance and also see trade finance products such as supply chain facilities being applied to medium-term export finance deals. It is encouraging to see the open-mindedness of borrowers and exporters to these ideas and also the flexibility that many agencies demonstrate in applying their products in these new ways. This form of flexibility and the desire to find new ways to offer existing products in support of clients has been a real feature of the trade and export finance market since the global financial crisis.
The multilaterals have in many respects led the development of products that span trade and export finance. Their trade facilitation programmes and the design of products specifically for the commodity finance sector have been especially interesting. SMBC’s approach of co-locating trade, commodity finance and export finance as products within global trade allows a particular focus on developing these types of cross-product solutions for clients.
Having said that, there is still more that can be done to broaden the delivery of trade and export finance across the market as is illustrated by the well-publicised US$1.5tn trade finance gap.
Q: One of those key trends in recent product development in trade finance has been fintech and digitalisation. This has been embraced by the trade finance market and many institutions, SMBC included, are investing in this area but within export finance it has a far lower profile. Why is this?
Joseph-Horne: Fintech and digitalisation within trade finance is an exciting growth area as the characteristics of many forms of trade finance suit these technologies well. SMBC has fully embraced this new area and, for example, is one of the core members of R3 & TradeIX’s Marco Polo platform. It is a high growth area of trade finance and we are fully engaged in developing customer solutions that make best use of this new technology. But it is also fair to say that export finance currently sits somewhat on the sidelines of this new technology as it has so far been orientated more towards ‘flow’ trade finance business with self-liquidating structures, relatively homogenous documentation and relatively short tenors. Of course this is a natural starting point but it probably won’t be the end point.
Currently, export finance has not seen much fintech activity and the bespoke deal structures and documentation may limit the early stages of product development. However, there are certainly areas of the export finance product spectrum that could be well suited to fintech and digitalisation. Such areas may include the processing of drawdown documents and the application process to the agency. One particular segment that could benefit from the advantages that fintech and digitalisation can bring is the SME sector in export finance. The relatively intense and high cost nature of delivering export finance solutions has meant that SME borrowers and exporters can feel excluded. Our current view is that fintech and digitalisation may be able to play an important role in improving the accessibility of export finance for SMEs.
Q: Staying with future trends and developments, what is the impact of the increasing focus on sustainability likely to have on trade and export finance?
Joseph-Horne: This is undoubtedly an area of increasing focus. We are seeing great interest in sustainability issues and SDGs across the entire banking sector and trade and export finance products should be central players in this development. We see focus on this topic from all sectors – borrowers, exporters, agencies and lenders. Currently there are issues around identifying common definitions and policies across stakeholder groups but it is encouraging to see strong industry effort in addressing this. SMBC is proud to be a leading bank in the financing of renewables projects globally and our prediction is that sustainability will be one of the key areas of focus for the trade and export finance industry in coming years.
Q: Finally, what role does SMBC play in broader industry initiatives and stakeholder engagement?
Joseph-Horne: Remaining at the centre of industry developments is very important for us. For a long time the bank has supported industry bodies such as the ICC and ITFA – indeed we chair trade and export finance committees at the ICC and provide the chair of ITFA – and we see strong benefit for the industry from the activities of organisations like these. We also see the benefit for SMBC as it helps facilitate broad industry engagement and knowledge sharing and provides us with a great opportunity to demonstrate thought leadership with our clients.