GTR Asia held its first editorial board meeting recently, gathering an impressive line-up of market players, writes Rupert Sayer.

Some of the leading figures in Asian trade finance gathered in Singapore on August 3 at the inaugural GTR Asia editorial board meeting. The gathering was kindly hosted by JP Morgan.

Participants discussed the state of the Asian trade finance markets. Where is growth coming from? What are the limitations and impediments to growth?

Asia remains a dynamic economic region in comparison to the rest of the world, with intra-Asia trade and exports keeping banks especially busy. The bigger markets such as China and India have continued to suck in raw materials from other regions such as Latin America and Australia.

Other issues cited affecting Asian trade growth include the level of world (especially US) consumer demand for Asian goods and the slowdown in Chinese economic growth, including more non-performing loans appearing in the Chinese banking sector.

How does the market correctly price trade finance risks in such a scenario? Whereas some around the table had seen pricing stabilise, with one or two markets showing an increase, other participants had seen deterioration in pricing.

Board members agreed that assuming trade finance pricing is cheaper than the syndicated loan markets, for example, then banks need to convince their corporate customers to use trade finance more. This includes small and medium-sized enterprise (SME) clients.

Recent problems of non-payment had come not from such SMEs, but largely from top-tier names, said one member. So especially for trade finance, the appetite is there for SME lending among the banks in Asia. The last three months has definitely seen more liquidity in the SME sector, claimed several participants.

There has also been a movement away from supplier financing to more standalone finance where banks feel comfortable with the supplier.

“The whole supply chain gusto is just a short-term phenomenon I believe. As the commercial bank market in Asia comes back in a big enough way, that bank market will take over. It’s just substitution – a working capital cycle,” said one board member. “But there is a fear of the pendulum swinging back negatively if there is a double dip. “If there’s another tightening or pull back in spending or subsidy programmes are withdrawn, we could be back the other way again with lines being closed and liquidity tightening again.”

With a few exceptions like the Philippines which is seemingly well-funded, there are already a lot of mid cap companies that are experiencing trade finance funding problems, added one voice.

Despite the fears of a double dip, Asia’s dynamism and growth potential still keeps the trade finance market optimistic. Indonesia is one of the biggest prospects mentioned. Other smaller markets in the region are growing too and cannot be ignored – especially Vietnam.

On the sophistication of the various local banks in such countries, although there is still scope for them to learn, they are catching up and can’t be underestimated, claimed participants. GTR