Every year, GTR gathers some of the most influential names in Asian trade finance to discuss the challenges the market faces. This year, we met in Singapore and needless to say, fintech, regulation and deal flow were high on the agenda.


Roundtable participants:

  • Finbarr Bermingham, Asia editor, GTR (chair)
  • Natalie Blyth, global head of trade and receivables finance, HSBC
  • Yongmei Evers Cai, partner, Simmons & Simmons
  • Kai Fehr, head of trade, Asia Pacific, Wells Fargo
  • Ivone Hodiny, head of sales, cash management and structured trade finance, DBS
  • Ivan Leung, head of export and agency finance, Asia, Santander
  • Aziz Parvez, head of trade and supply chain finance, Asia Pacific, Bank of America Merrill Lynch
  • Vijay Shankar, head of global transaction banking sales, Asia, ANZ
  • Farooq Siddiqi, global head of trade finance, Standard Chartered
  • Azim Walli, head of trade and supply chain products, Asia and Oceania, MUFG


GTR: How have you found the past year? What is the state of the market? To what extent is this year better than last year?

Leung: 2017 is a slightly better year compared to 2016. There were a couple of factors affecting the business in 2016. One was the renminbi (Rmb) depreciation expectation, and we saw Chinese corporates shifting their funding requirement from Hong Kong or from Singapore back to China. Also the commodities prices, particularly of oil, drove down the demand for funding. Margins became low in 2016: for us it was a tough year for the transaction banking business.

2017 is comparatively better. Commodities prices are coming back and as is demand for funding. We also see that some large Chinese corporates are quite concerned about their balance sheet ratios and are looking at transaction banking products, other than working capital loans, which can help strengthen their balance sheet. Some of them are also adopting a ‘go global’ strategy and thus need to raise foreign funding and are looking for banking solutions to help them integrate newly-acquired offshore companies.

Hodiny: 2017 is a lot better, from a commodity perspective. We are seeing more demand for credit facilities from agri, energy and metals. We are actually expanding into these areas. Especially with oil, prices have gone down, and hence we are seeing smaller cargo sizes. We are compensating this through diversification into other types of commodities.

Fehr: At Wells Fargo, we are a good proxy for the market. Last year was a very difficult one for us. The flow volumes were down around 15 or 20% in some markets. That seems to have bottomed out. Just from last month’s [August’s] numbers we saw a year-on-year increase. It’s a small increase, but it seems that the overall volumes are coming back in Asia Pacific.

Shankar: We see the turnaround in the commodity space. We also see an uptick in this part of the world around the telecoms, media and entertainment and semiconductor industries. We appreciate the right challenges around the margins, because we can’t compete against charity, and there are a lot of banks who can give very low quality capital.

The challenge is around trade margins, I think that is one of the key concerns all of us have. But I think how judicious and calibrated you are is important, because you understand that in the loan business you may not get the kind of margins you need, but if you look at cross-sell across cash and forex, I think then it makes sense.

Fehr: That’s an interesting point. In the old days, we were the juicy business. And we still have high return on equity, short-term assets and light risk-weighted assets book. Are we now the business opener for other businesses as well?

Shankar: That’s true. Even from a revolving credit facility (RCF) perspective for the global companies, unless you use that effectively to cross-sell, you will not be able to understand the loan business and compete against that. The trade margins will stay where they are, and no amount of wishful thinking will increase them because the number of players participating and the liquidity pools available are very large.

Walli: Generally, most of us mimic GDP growth. If you look at Asia, in the first half of 2017 it was about 1.7%, so it’s not stellar, it’s stable, and I think most of us are growing in a stable manner. I also think there is a lot of rejigging.  In China we have seen that, especially where you have got the rebalancing from manufacturing into domestic consumption. Certain sectors have become very important to the state, such as agriculture for instance.

In addition, on the open account side, in China for instance, there is a lot less recently. Meanwhile, a lot of South American countries are increasing their open account business. The growth is stable but I think, at least from a product or solution perspective, our mix internally of where we get our revenues from is changing.

On the point of whether transaction banking leads or is following, we in the past have been known to be a lending bank. Transaction banking products are at the top of the list to ensure that we have got a much wider portfolio of the customer’s wallet.

Capon: For insurers, 2017 has been quite an interesting year. In 2015 and 2016, the market as a whole here in Singapore got hit with a lot of claims out of India and China. The traditional model was very focused upon single risk. That is what the banks brought to us: single risk, deal by deal, in the commodity space. Post 2016, that has changed.

The biggest challenge is the need to talk about the open account space, and we are slightly different to a lot of the market in that we have a large corporate open account book as well as our financial institution credit risk. The problem we have had on the banks’ open account piece is the pricing.

Whenever you get receivables and payables programmes coming into the market which look nice, the pricing is just so thin, because the Taiwanese bank are already undercutting you. You are pricing on liquidity, not on risk. By the time it gets to us, we are looking at the returns, and the biggest problem that we have had this year is trying to identify the right pieces of business.

Blyth:  From a global perspective, we still see it being very uncertain, actually. The journey of 2015/16, the commodity prices collapse, China’s slowdown, and the first ever dislocation between trade values and volumes has hit everybody across the industry. We cannot really say that it has stabilised, with trade values correlated to the oil price. Tracking sideways is as confident as I can get. And we may see a bit more adjustment.

The longer-term optimism for the industry is there, but I think in the near term, it is still pretty challenging. The product mix shift is moving a lot faster than any of us probably anticipated. I’m sure all of you got the Oliver Wyman data that shows that as well, with the shift away from the traditional to the structured trade, now at 53%, with a significant acceleration in the past four to five-year period. Although the first half of this year showed little green shoots, I am certainly cautious about this year, in general.


GTR: On that product shift that a number have people of mentioned, has it escalated significantly over the last year?

Blyth: I think so.

Siddiqi: It is sector-led. There are some sectors where it completely escalated.

Fehr: There are actually some corporate clients who look back to the good old letter of credit (LC). One client, a global retailer, is changing its procurement to 100% LCs. They consulted with us and identified this as an easy way to providing effective supply chain financing to their suppliers. For a simple LC solution you don’t need a large supply chain programme which requires heavy lifting from an onboarding and tech perspective – but achieves the same goal, in a very cost-efficient and easy-to-implement manner.

Blyth: People do still gravitate to LCs in times of uncertainty.

Evers Cai: In the client market we see the regulatory change from China, in terms of foreign debt, restricting capital going out and pushing capital coming in. We see the financing structures being discussed a lot. Banks and clients are starting to think about different structures, either financing offshore, or directly into onshore, so that makes the transactions very interesting.

From China, we feel the economy is stable. The government is able to control the markets, and that gives a little confidence to the market. With Chinese banks, although the government tries to control whatever transactions they are trying to do, they do it quite well. They’re following the Belt and Road Initiative (BRI) policies, this is quite good as well.


GTR: Has anyone seen a material impact on their business because of the actions of the Chinese government?

Siddiqi: What is interesting is how companies in China are responding. They are increasingly going cross-border. In response to the cost of capital and cost of labour going up, the supply chain is now gradually shifting to Asean, South Asia, and even to places like Ethiopia for ready-made garments. What is interesting is the longer-term macro trend that comes out of some of the short-term currency and capital constraints that the country is facing.


GTR: Are you seeing new sorts of deals and new sorts of routes?

Siddiqi: Take ready-made garments or toys. It is the move from China to Cambodia and Vietnam, and to Bangladesh. There we are seeing how the supply chain is starting to shift. Some of is it sectoral. The change in the business model is probably a longer-term trend.

Walli: The restrictions coming out of China, when you look at the production overcapacity, actually create opportunities for other countries in the region. In some cases, you have seen companies in Vietnam, Indonesia, Malaysia, take up areas where historically China would be leading the manufacturing production. Because we all play in this area, there is opportunity there from a trade finance perspective. Those restrictions coming out of China don’t necessarily have a negative impact on all the other countries within the region.

Fehr: We have seen a particular tendency for garments and textiles to move into other markets. International factoring is for us an exponentially fast growing area. We work through our partner banks in the region to enable their clients’ exports and provide them an alternative way of funding their working capital.


GTR: Are the uncertainties Natalie mentioned earlier having a restrictive effect on business, or is business continuing? Are your clients nervous about the long term? How is this having an effect on the trade finance business being done?

Parvez: People are trying to keep themselves aware of what is happening and what could happen, but no immediate concerns have been raised or seen.

Shankar: Trade is a blunt tool for geopolitical statements. So whether it is free trade agreements, it is used as a negotiating tool. But yes, there has been a minor impact on some of the newer entities and sectors within Russia. These are trends you expect, and North Korea is another one we see. From the client side, we don’t see much impact from the regulatory changes. The effects are not really derailing our plans.

Hodiny: I would echo that given that trade and all related restrictions will continue to evolve, we will need to live with that and always continue to find alternatives. If we know certain restrictions are emerging, we need to find other avenues of growing our business.


GTR: Do people have to be more flexible in the industry these days? Is more pragmatism required?

Shankar: We are practical about it. With Basel III, it has to be passed onto the customer rather than further squeezing your margin. The new one is the Australian regulator coming in with the bank levy on deposits. We have got used to the hindrances that come up in these countries, and we bake it into the business plan.

Fehr: It is important to differentiate what the industry faces versus what we face in the transaction banking space. We should all encourage the ICC and Baft to speak up on our behalf. We need an industry body to address the trade specifics. Most of the recent regulations were never aimed at trade finance, but it either directly or indirectly impacts trade.


GTR: Do you think the regulators are listening? There have been lobbying efforts going on for a number of years, have you seen any indication that there is receptiveness on the part of the regulators?

Blyth: The increased focus on trade in the public arena is forcing people to pay attention. Ears are open. There may have been advocacy going on before, but it probably wasn’t really listened to. Now regulators are asking to be educated, because they don’t know enough about trade. I have been shocked as to how many people out there know little about trade finance.

Walli: I think it is happening, but I don’t think it is happening at the pace that we would all want it to. In Singapore, the Monetary Authority is looking at trade-based financial crime legislation, and on that particular one, a number of banks are involved in sitting down with them on a regular basis and helping to formulate their revised regulations.

Fehr: It is also about the frequency with which industry bodies meet the regulator. Only with a regular dialog can we achieve a higher level of education on trade finance-related matters. A high level once-a-year meeting won’t achieve a knowledge transfer required to get to the bottom of the trade finance world. At Baft Asia we are currently discussing the engagement model.

Walli: A bigger concern to me is the Basel issue. Are there folks there who actually understand trade finance? Who and how can we change that view? Because, based on the Basel III revamp, or Basel IV,  I don’t really see the discussions that are happening right now going in the direction that those of us who have been in trade for a while would espouse, so that to me is a bigger concern.

Blyth: How many of you are confident that the members around your holding’s board table understand trade finance? They are the ones who have high-level meetings with the regulators, so it’s critical they become more confident and able to talk about trade.

Siddiqi: I think there is another angle to the regulatory discussion, which is digitisation. If I look at big emerging markets, all the regulatory bodies are pushing that. There is this whole financial inclusion angle which emerging market regulators are talking about, but while they understand financial inclusion in the context of banking the unbanked, they don’t understand it in the context of what capital raising can do for financial exclusion of SMEs, for instance.

In addition, people now see the adverse impact of what has happened on correspondent bank derisking.

Walli: On derisking, there are probably some casualties. Some banks in certain markets have been unable to respond because of the complex compliance requirements, they don’t have that geographical presence and they don’t have the ability to scale up. They have left certain markets because of that.

Blyth: There are market withdrawals, client sector withdrawals, product withdrawals and geographical withdrawals.


GTR: Moving onto digitisation, when will these proof of concepts be followed up with second and third transactions and commercialisation? What are your expectations, and are people getting carried away in believing the hype?

Parvez: When this hype started, the expectation was that this would be something which would resolve all of the issues and challenges that we are facing in the industry. But we need to understand that it is not something which can be done overnight. It is going to take its own time, and we have to do it in small packages. Right now, people are all focussed on the big picture; nobody is taking the smaller steps.

Blyth: I couldn’t agree more. There are a number of precursors to having everything digitised on a distributed ledger.

Walli: I think with blockchain there was the expectation that it would be developed by tomorrow. Now, the thought is that it is five to 10 years away from becoming mainstream, and we need to recognise that.

Having said that, I think the other issues in the space such as robotics and cybersecurity are seeing advances. On the robotics side, from an anti-money laundering AML perspective, MUFG can process data robotically, and that is in production. It depends on what part of this space you are looking at whether it is today, or it is five years from now.

Blyth: Are we all confident that the journey has actually started and it is not going to go back in our lifetime? I feel confident about that.

GTR: Do you hear from your clients that they are interested in digitisation, or is it just the banks?

On the client side we are seeing more the Internet of Things than blockchain, so IoT is something they are implementing.

Parvez: It depends on which clients we are talking to. Some of the large MNC clients, yes, they are looking at this space. But others, maybe not. At a recent event, we asked our clients to indicate if they were looking at any project which relates to digitisation. 76% said no.

Evers Cai: From China’s regulatory perspective, they have developed quite a good platform which makes companies or banks register compulsorily with certain platforms, and that provides transparency to the regulators in relation to what is going on in the market. That also allows them to control the markets and then perhaps move around policy a little bit. The government has all the data so developments in the technology space will assist regulatory development, and it is providing a positive impact.

Blyth:  I’m sure the regulators who are keen to adopt it are going to prove to be a critical catalyst in the transformation.

Shankar:  Many corporates we talk to, particularly in trade treasury, say that 28-35% of the current manual process have to go digital this financial year. Traditionally, trade has lagged cash in the process, and now we can see the trend moving towards more than 45-50% of all trade volumes today, which was not the case a couple of years ago.


GTR: Does it come naturally for trade bankers to collaborate or is that something that the industry is having to learn?

In China or India, there are domestic platforms doing stuff that is just B2B or small SMEs, always purely domestic players. Then you see a bunch of platforms where they have built something and there is a possibility of getting a bank involved and increasing the proposition. They are bolting on and that is where banks can come in. I think there are lots of other players we have seen that just want to come and play the role of a technology player. It’s forcing us to have a conversation about how we collaborate.

Leung: It’s still a collaborative environment. For example, when we look at the large e-commerce companies, they do not have the banking infrastructure to complete the whole puzzle and they need banks to work together to deliver the whole thing.

Capon: We have been having conversations with some of the big Chinese firms around collaborating and advising them on how they might build risk and credit scoring models to start to assess their own counterparty risk in some of those flows. They have got so much data, and that is quite an interesting collaborative conversation. In the insurance sector, we set up digital teams around the globe about two years ago, and it is a big push for us.


GTR: What do you think will come from the trade finance business in the next year?

Siddiqi: We tend to overestimate change in the long run and underestimate it in the short run. We will hopefully be pleasantly surprised at what we will see happening in the short term. For markets and sectors in consumption-led industries, you are going to continue to see that muted growth, mostly because of the uncertainty around regulatory issues or what is happening with global trade agreements. From a customer perspective, the key mark will be how they start looking at the supply chain.

Blyth: I am very confident to predict that there will be even greater and continued uncertainty, and we will all be operating in a more complex environment, so we are going to have to be pretty resilient to navigate and manage that. I am also confident that we will have moved on positively from proof of concepts within six months.

Capon: It is still going to be pretty challenging working with the banks, given that nothing is going to change beyond the liquidity front. It comes back to the way we model capital and so on.


GTR: With that, we’ll have to finish up – but thank you to everyone for your time.