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National Australia Bank (NAB) has lost 20% of its domestic trade finance customers in the past five years, with its “big four” rivals the main beneficiaries.

Research from banking analysis firm East & Partners, seen by GTR, shows that customers cite “general industry knowledge”, “advice and management” and “innovative solutions” as reasons for leaving NAB.

Conversely, however, those customers that stay with NAB are banking more, with the bank bucking the trend of a decreasing wallet share for trade finance. Furthermore, SME and corporate customers surveyed express strong satisfaction with the bank’s trade loans, trade insurance and pricing relative to big four peers ANZ, Commonwealth Bank of Australia (CBA) and Westpac.

Over the same five-year period, CBA has seen an increase in its trade finance customer base of more than 40%. CBA also showed the strongest annual growth of 4.5% among SMEs.

ANZ has grown its overall trade finance base by 10% with Westpac showing marginal gains. East & Partners forecasts that ANZ will surpass NAB as Australia’s biggest trade finance bank for SMEs within two years. It is also pulling further ahead of NAB in the mid-market and accounts for one in four primary transaction banking relationships among corporates.

NAB declined to comment on the report when contacted by GTR.

The wider trend in the market, however, reflects increased competition in a sector that has long been dominated by four banks. Non-bank lenders are becoming more prominent, while multi-banking is on the rise.

“The trend away from multi-banking, predominantly within the corporate and institutional segments has now however firmly been broken as importers and exporters exhibit a greater tendency to ‘shop around’ for open account financing and letters of credit (LCs). Customer expectations are increasing considerably faster than banks can currently keep up with, especially across key e-trade platforms and digital capabilities,” reads the Trade Finance Programme report, which East & Partners has been running since 2004.

Reflective of the industry as a whole, pricing remains tight in Australia. Revenue pools are under pressure from declining trade flows in 2016, although this is projected to improve in 2017. Pitching is more competitive with the digital capabilities of trade finance providers being a key issue for companies, the research finds.

In an interview with GTR earlier this year, Alan Huse, ANZ’s head of transaction banking for Australia and Papua New Guinea, acknowledged the increased competitiveness in the market. He said banks have not seen the returns from supply chain finance programmes that they expected, and that banks need to improve their offering if they are to hold onto their market share.

“Trade is changing. And so we have to find a way to broaden the trade banner to include working capital facility. The pie is smaller and the competitive nature means pricing is down. Banks are thinking: am I getting fair returns? The cost of delivery is high in trade with all the documentary checks. One of the big changes we’ll see is around data and digitisation, which will drive costs down and help us do things more efficiently and make bigger margins. For SMEs in particular, presenting a complex trade proposition is always a difficult sell. If you find a way to make it more nimble and efficient, then you have a winner,” Huse said.

The research is collated from direct interviews with a representative sample of importers and exporters in Australia. It found that banks are now targeting customers’ specific trade finance needs, whereas before it was part of a “transaction banking-led” strategy.

“This emerging trend is reflected in the absence of a stand out Australian market share leader across all three market segments and unfolding break down in cross-sell effectiveness evident among incumbent market share leaders,” the report reads.

Other notable findings include:

  • Thanks to the opportunities brought by e-commerce platforms, more Australian SMEs are now exporting, where they were traditionally mainly importers.
  • Among all providers, Bank of Queensland is the best performer in terms of growth, recording an 11.1% jump in market share, albeit from a low base.
  • Of international banks, HSBC is showing strongly, with a 3.5% increase in market share, year-on-year.
  • The average share of wallet allocated to primary trade finance providers has fallen by 4% per year to 67.2%. The report finds that “decreasing customer satisfaction in key product and service lines is chiefly to blame for this behavioural shift, namely trade loans, e-trade solutions, value for money, pricing competitiveness and global representation”.
  • Worryingly for NAB, it has slipped out of the top five banks in what the research classes as “mind share”, that is, the first name brand recall. ANZ and HSBC lead the field on this front.