Australia’s Westpac has continued trimming its trade finance product in Asia, its half year results show. Analysts say its modest market share is likely to be gobbled up by major institutional lenders.

The country’s second-largest lender announced in October 2020 that it would consolidate its international operations into hubs in London, New York and Singapore as it seeks to concentrate on its core domestic offerings in Australia.

Westpac’s half year results, released earlier in May, disclose that its shrinking loan book in Asia is largely attributable to a reduction in trade finance offered in the region.

It says net loans at its institutional banking business were down 21%, or A$16.2bn excluding foreign exchange movements, compared to the first half of 2020, “primarily from a reduction in offshore lending, including lower trade finance in Asia and from a prioritisation of return”.

Total spot lending was also down 4%, or A$29.6bn, over the same period partly due to “reduced offshore lending mostly from a reduction in trade finance Asia following our decision to consolidate our Asian points of presence”.

Martin Smith, head of Australian markets analysis at research firm East & Partners, says its research found that Westpac’s market share as an institutional primary and secondary trade finance provider was already waning before the October 2020 announcement.

Westpac’s full year results, released in November 2020 – Australia’s financial year begins on July 1 – attributed a 9% income drop at its institutional banking business partly to a decline in Asian trade finance.

Smith tells GTR: “Much of Westpac’s trade finance share at the top end of the market has already been absorbed by other trade finance providers.”

“It is unlikely Australian banks will be the beneficiary of middle-market enterprises moving away from Westpac, with this more likely to be picked up by international majors such as HSBC, Standard Chartered, Citi, JP Morgan and Bank of America along with Asia-headquartered trade finance providers such as DBS, Bank of China and MUFG.”

Westpac did not respond to questions from GTR about the progress of its consolidation in Asia. Bloomberg, citing people familiar with the matter, reported last year that the bank was set to cut 150 jobs in Beijing, Jakarta, Hong Kong, Mumbai and Shanghai.

Westpac is not alone in having a small trade finance presence in the broader Asian market. Of the Australian banks active in the wider Asian trade finance product, only ANZ is competing with international and Asian heavyweights for market share.

In 2016, just 0.3% of the big corporates in the region used Westpac as their primary trade bank, according to East & Partners’ Asia business head Sangiita Yoong, citing the firm’s research.

“We do not expect to see big movements in the market in terms of Westpac clients looking for new providers,” Yoong says. “Among Australian banks, ANZ is the only major bank that has successfully expanded its trade finance footprint in this market that is dominated by big international and regional banks.”

In 2014, when its revenues in Asia were growing strongly, Westpac’s then-head of international business Bala Swaminathan said the bank was eyeing further expansion in the region and looking at creating 100 new positions.

Swaminathan, who retired in 2018, told Bloomberg at the time that trade finance takings would make up around half of Asian revenues.

Announcing the bank’s international drawdown last October, acting Westpac Institutional Bank chief executive Curt Zuber said “Westpac’s priority is to focus on its core Australian and New Zealand customers and to support them in areas where we have scale and capability”.

East & Partners’ Smith says Westpac’s trade finance footprint in the region will be “much reduced, with limited exposure to major multinational corporates but still supporting Australian exporters expanding abroad”.

“Given the inherent reliance on relationship banking and close interpersonal dealings in trade to navigate document heavy processes associated with letters of credit, receivables and open account financing, Westpac’s reduced ‘on the ground’ presence in key Asia markets will likely see the group struggle to compete with incumbent international heavyweights and local regional offerings.”

“Westpac has however invested heavily in data capability and digitisation to improve efficiency in this area, an ongoing challenge for the market as a whole.”