Competition in the Australian banking sector is driving down the cost of trade finance, and the opening up of the sector is likely to see the trend continue.
A new study by market research and analysis firm East and Partners found that in Australia, customers show far less inclination to stay with their trade finance providers than elsewhere. The firm measures the metric regularly and found it to be at an 11-year high this year.
The survey found that 32% of corporates in Australia are likely to change their primary trade finance providers, and the main reasons cited were increased pricing competitiveness and the reshaping of the market by digital solutions. Even at the smaller end of the market, 25% of SMEs are considering switching banks.
Pricing has been under pressure for several years, the firm’s head of markets analysis Martin Smith tells GTR, but this has pushed trade financiers to innovate, competing on digital solutions, knowledge of certain sectors and expert advice.
Meanwhile, pricing will be squeezed further still as Australia’s financial sector is blown open to more international players through agreements such as the Trans-Pacific Partnership (TPP).
Smith thinks there is more room in the market for other providers, following DBS’ decision to expand to Australia earlier this year. He says that Chinese and Japanese banks are seeking to develop a presence beyond servicing their large corporate clients there – and the Bank of China branches present in most of Australia’s big cities are evidence of this.
“On a broad scale the market is very well serviced and highly competitive, however a number of corporates are open to conducting secondary trade finance functions with a specialised international bank in areas such as risk advice, trade loans or trade insurance.
“The ‘Big Four’ Australian banks represent a cumulative trade finance market share of 65% and cumulative transaction banking market share of 87% in the institutional segment. These figures are lower among smaller-sized enterprises. HSBC has achieved significant market share growth in trade and transaction banking and demonstrates the opportunity available to international banks such as DBS or incoming,” Smith says.
The report also touches on the relative benefits of trade agreements, finding that much like elsewhere in the world, smaller companies are less likely to know much about them in general.
Of almost 1,900 exporters quizzed, one in two didn’t know how the series of FTAs Australia has struck recently would benefit them.