GTR’s annual Asia trade leaders roundtable brought together senior figures from the region’s trade finance market. Held on the sidelines of GTR Asia in September in Singapore, the discussion covered shifts in demand for trade and working capital finance in a higher interest rate environment, how China’s domestic slowdown has affected trade flows, and how efforts to digitise the sector have progressed – particularly as artificial intelligence enters the mainstream.
Roundtable participants:
- Amit Agarwal, managing director, head, trade products and risk distribution, DBS
- John Basquill, senior reporter, GTR (chair)
- Maisie Chong, managing director, global head of receivables, head of trade and working capital, Asean and South Asia, Standard Chartered
- Belinda Han, managing director, head of transaction banking, Asia Pacific, MUFG
- Ashutosh Kumar, managing director, head of global transaction banking, Asia Pacific, Mizuho Bank
- Rakshith Kundha, managing director, head of trade and supply chain finance, Asia Pacific, Global Payments Solutions, Bank of America
- Matthew Moodey, managing director, head of trade finance and lending, Asia Pacific, Deutsche Bank
- Yoshitaka Morita, head of global trade finance department, Asia Pacific, SMBC
- Shalin Shroff, head of trade and working capital sales, Asia South, Citi
- Ian Tandy, managing director, co-head of Global Trade Solutions, Asia Pacific, HSBC
GTR: How would you characterise trade and trade finance in the Asia Pacific region over the past year? Are there any standout trends that have shaped business, whether in terms of challenges facing clients or areas of growth?
Moodey: The major trend is really geopolitics, or fragmentation of the world. Most governments are now slapping each other with tariffs, which has already started slowing down trade and breaking the world into trading blocs. We’ve gone through multiple decades of globalisation, but I would now characterise where we are at the moment as de-globalisation, where politicians are looking to bring manufacturing jobs back into their own markets, using tariffs to protect their own industries.
Kumar: People talk about food security, and across different kinds of agri commodities we see barriers coming in. That is impacting trade both in terms of demand and supply, as well as pricing. More generally, companies are looking at aligning their supply chain from a security concern perspective, whether that means China-plus-one or moving away from China completely.
I think that the biggest trend is in tech. There is a lot more manufacturing happening, even for big names, outside of China and in markets like India. Even companies that are already in China are looking to set up bases outside the country to make sure their own business doesn’t get impacted, and as a result, banks have to make sure we can support customers in different parts of the world.
Agarwal: On the trade finance side, there are positives and challenges. The positives include regulation developments in key Asian markets, specifically India, China and Vietnam. In India, the opening of the Gift City creates new opportunities for trade finance. Vietnam’s recent introduction of factoring addresses a significant challenge in that market, while China’s State Administration of Foreign Exchange (Safe) regulations that came out in November 2023 highlight nine new measures to promote international trade.
Another silver lining is that trade finance has demonstrated resilience, avoiding major losses even in the face of post-Covid recovery and higher interest rates. However, one challenge has been for the cross-border element. Borrowing in local currencies – such as renminbi, Korean won or Japanese yen – has become more cost-competitive than the US dollar, leading to a shift towards onshore financing in some cases.
Chong: One of the key trends we have observed is clients scaling back their borrowing activity as they await a decline in interest rates. Additionally, we have also been closely looking at our Chinese corporate segment, as China represents a significant corridor for us.
Notably, what we observed is that many state-owned companies were trying to come out and decouple, forming joint ventures with other shareholders and seeking to be evaluated on their standalone financial performance. As a bank, our focus is on finding ways to extend credit effectively to these companies, given their original China roots that they’re still connected to.
Han: With the high interest rates, we have seen an increase in unfunded trade as a proportion of the total trade portfolio. The electric vehicle value chain, tech and renewables sectors are strong growth areas for us, especially given our leading project finance capabilities and extensive network in Asia Pacific. We are also actively supporting our clients’ intra-Asia trade and capital flow.
Shroff: One of the standout trends is the robustness of the tech sector. Initially, the tech sector’s strength was quite skewed towards Taiwan and Korea, probably led by the AI boom, but over the last few months the data we are seeing shows it’s becoming more broad-based. We’ve seen a lot of activity on the hardware side, with devices and traditional PCs, which from a client financing activity perspective is supporting exports out of Singapore, Malaysia, China and Vietnam. This has translated to a lot of client activity around working capital financing across the entire tech sector value chain.
GTR: Has the economic slowdown in China, and particularly the disruption in the real estate sector and supporting industries, had a material impact on trade in the wider region? Should companies be concerned?
Morita: In the steel sector, there has already been some consolidation, and there could be affected parties in other markets. They invest heavily in Indonesia as well, for example, and there could be disruptions in these countries in the future. There is also a manufacturing base in China that has already started to move into the Asean region. The China slowdown is a huge thing. However, we have seen a positive side as well, because those companies need capex-related finance and working capital.
Tandy: We can’t forget how big China still is as a market, and the impact it still has. One of the trends we’ve seen is intra-Asean growth, and we’ve all been talking about Indonesia, Thailand and Malaysia. And the story of India is just immense. The investment that is coming into those markets is not just from China – it’s from the west as well – and the opportunities for businesses are huge. China continues to be a significant market for all of us, and its shadow across the Asean region is really proving beneficial.
Moodey: This conversation about supply chains shifting to China-plus-one is a nuanced one. If you look at the type of jobs that have left China, they were probably the jobs China didn’t want; it was last-mile jobs moving out, whereas what China is trying to do is elevate itself in the supply chain to the more value-added side. Another change in China has been the regulators flooding the market with liquidity, changing the Chinese equivalent of the capital adequacy ratios, and introducing legislation that may favour local banks more than international banks as well.
As a result, the other trend I’ve seen is margin compression. Whenever you have an oversupply of liquidity and limited demand, then the margins will compress in that market.
Agarwal: I completely agree. China is a vast market, and while its growth rates have moderated from 7% to 5% or from 6% to 3%, the scale remains immense. While the real estate sector is experiencing challenges and some domestic demand has softened, much of this output is being redirected to markets in the Middle East and Asia, where a lot of infrastructure projects are coming up. For instance, China’s steel exports are now heavily focused overseas. If we align ourselves with these flows heading to regions like the Middle East or India, there’s substantial opportunity to tap into.
Kumar: To bring a slightly different perspective, that 7% or 8% growth in China was driving a lot of trade with various partners, whether that was Asean, north-east Asia, Korea or Taiwan. Because growth has slowed down to around 4%, that is clearly having an impact on overall flows. In an economy the size of China, that drop in growth means billions of dollars disappear, some of which will be from those trading partners and economies that were quite tightly coupled with China.
However, there are still sectors that are doing well. If you talk about renewables, they’re doing much better than in the past, whether that’s electric vehicles, solar panels or wind, and they’re exporting a lot of that quite aggressively. There is also advanced or precision machinery that is doing well.
Shroff: The slowdown in demand has resulted in industrial overcapacity, which has impacted multiple sectors including chemicals, steel, electric vehicles and even solar panels. All of that capacity needs an outlet, and with the west imposing trade barriers, a lot of that is going into Southeast Asia and the Indian subcontinent. As a result, there has been margin pressure for some clients in those sectors. Taking agrochemicals as an example, what was expected was a six-month period of excess inventory, or maybe 12 months. We’re seeing now it is having a much longer impact.
Han: The slowdown in China is more pronounced domestically, particularly within the real estate sector. On the other hand, exports remain strong. If you look at China’s trade volume, the first half of 2024 saw a 6.1% year-over-year growth in renminbi terms, resulting in a trade surplus of approximately US$435bn. Due to the slowdown in domestic demand, Chinese companies are more proactively seeking opportunities outside China.
Asean countries have already become the largest trading partners for China, and trade volume with Latin American and African markets continues to grow. Companies are actively exploring new markets and trade corridors, and this is where we can play an important role by providing market intelligence, trade solutions and structuring to help our clients enter those markets.
GTR: Are there any trends around specific goods or commodities that you would highlight?
Shroff: Because of the previous two or three spectacular years of commodities, a lot of traders are sitting on a ton of liquidity, so where they used to come to banks for revolving credit facilities or trade finance, those requirements have not been there. Now, they’re coming more for counterparty risk mitigation structures. There is also more interest in some commodities. A lot of traders are setting up lithium trading, and copper continues to be in demand.
One surprising element is how much interest there is now in agricultural commodities including fertiliser trading as well, both on the urea and potash side, and those corridors are changing with the Russian supply being interrupted. Overall though, financing requirements have definitely come down given the amount of excess liquidity traders have.
Moodey: You can’t put all commodities in one basket, but in general, GDP does tend to drive prices, whether it’s oil or iron ore. We’ve seen prices come down a lot, and the traders are flush with cash, so we’ve seen financing needs go down. But we’ve also seen some stress, for example in steel, and there are a lot of questions there. With lithium, there is stress in the system too because prices are being cut by two-thirds as well.
And there are a lot of industries that are still working things out. We thought electric vehicles and green were going to drive copper, lithium and other metals, but now we’ve figured out it’s not as simple as that; it’ll take a bit longer, and each commodity has its own different issue that’s driving it.
GTR: How would you describe demand for trade finance at the moment? Are there particular products that are attracting more interest, for instance on the working capital side? And how is traditional documentary trade finance faring?
Tandy: Unfunded has definitely been the star this year, for all the reasons everyone’s outlined so far. We’re seeing increased demand for receivables finance, especially with limited recourse, which links clearly to the working capital cycle in some of the supply chains we see. We’ve also seen in supply chain finance that simply extending financing to suppliers to increase liquidity in the supplier base has been well received. We introduced a digital product in that space which has had significant take-up.
There have been other elements too; the unfunded issuance of guarantees related to projects or investments has been significant. But it all goes back to the same thing – the high cost of funding. If you have your own liquidity, you would use that before coming to a bank.
Chong: In several companies, especially multinational clients, we are seeing CFOs managing their liquidity closely with restraint on drawing down on their working capital solutions, ie receivables purchase facilities, unless absolutely necessary. However, we’re advising several clients on their working capital and cash conversion cycle now, so they can leverage on the declining interest rates and ‘get back in the game’ at an opportune time.
In the open account space, we have a lot of client requests to partner with third-party platforms, which shows us that they are no longer focusing on having only a bilateral supplier finance or receivables purchase structure with the banks.
Agarwal: Just-in-time has evolved into just-in-case, which has driven significant interest in inventory financing, even for non-commodities. That’s a new space we’re exploring further, and it has proven particularly effective in the chip sector. Another focus is how to break the challenge of lower-cost funding. We’re examining ways to synthesise some of the treasury market products around cross-currency funding, ultimately to reduce the cost of capital for clients. While top-tier clients continue to leverage their own liquidity, there is still demand as you move slightly beyond this segment.
Han: Client requests have increased quite a lot this year, especially on unfunded trade associated with infrastructure investment. The impact on global supply chains caused by disruptions in the Middle East has led to a higher need for trade credit. We also see strong growth in distributor finance driven by clients expanding their business into the Asean markets.
Kundha: My colleagues have covered a lot, but I would add two things. First, the demand for local currency financing has picked up especially, given the prevailing different interest rates in various markets.
Second, as clients expand into new geographies, they want to talk to us more about the best practices around navigating the local ecosystem, more so in markets where there are regulations around currency conversion and nuanced processes around export-import. This enhanced engagement allows us to work more closely with them as they put their own processes in place.
GTR: Are you seeing significant activity on the export credit agency (ECA) side?
Kundha: This year has seen continued activity on the ECA side. One sector where we have seen such activity is around green energy, be it upstream or downstream, including batteries as well as general capex. For banks that house ECA finance within trade finance, this part of the business has been one of the best-performing ones in terms of growth.
Moodey: Infrastructure spend across Asia Pacific is showing double-digit growth. We house our ECA business in project finance, and then put that within trade finance, because it allows us to capture everything in that whole ecosystem around infrastructure, whether that is supporting EPC contractors building across regions, letters of credit for importing large pieces of equipment, all the way to project finance and ECAs.
Shroff: To add to that, we’ve seen a lot of activity in untied financing, and with oil and gas continuing to shrink across European ECAs, ESG and green financing has become an important consideration for the agencies. ECA financing has indeed been a standout product for us as well.
GTR: This region is known for its progress in digitising trade. How would you describe the progress made over the past year, and are there any standout areas you would highlight?
Tandy: I moved to Asia around a year and a half ago, and the pace of digitalisation across the individual markets has been just immense. We were talking about India in terms of growth, but the investment the Indian government has made in terms of the technology stack, and the related opportunities for financiers such as ourselves, are significant.
Regulators are playing a very positive role in a lot of the markets, and that essentially means trade finance is moving into the 21st century. We’ve been moving paper for long enough. Whether it’s payables, receivables, distribution, or helping companies go into new markets, it is becoming more simple and straightforward.
Kundha: I agree, governments across Asia Pacific are investing hugely in technology and digitisation. Eventually this should lead to significant productivity gains and make it easier to do business, but it does create a transition period for corporates. We have to closely partner with clients and support them as they navigate through these changes and put processes and systems in place to comply to take advantage of such changes.
More broadly, clients have different needs and many times a single digital solution does not cater to all their requirements. Fundamentally, product development is about putting the customer at the centre, understanding what is needed and solutioning for it. As we do this, we increasingly come across different providers, maybe fintechs, that have solutions. From a bank’s perspective, working with different solution providers brings its own challenges in terms of onboarding and integration.
To that extent, managed service arrangements with large techs may be one way ahead. This brings the continuity and robustness of a large tech’s process into the picture while allowing different solution providers to collaborate with banks. We recently partnered with a global tech giant who helped front our collaboration with a fintech to offer a fully digitised end-to-end solution leveraging smart contracts, machine learning and natural processing language for a specific requirement, significantly improving efficiency at both the bank and client end.
Agarwal: There are a lot of technologies that have been highlighted as changing the landscape of trade finance in the last few years, starting with APIs and blockchain. While progress has been made, the impact has been slower than expected in some areas. However, the use cases I’m seeing from gen AI could mark a turning point, particularly in back-end processes.
For instance, we have been working on an electronic bank guarantee solution where AI reviews guarantee formats that come in, then updates and books them into the systems. We’re now achieving around 80% to 85% accuracy, which is a promising step forward.
Kumar: When you look at trade digitisation, there are a couple of parts to it. One is making it efficient for the exporter and importer, and that depends on the countries involved. Do they accept electronic documents; can you obtain title to the goods based on that? For every five countries that have changed on the legal side, there are dozens more that are moving slowly. Another is efficiency on the corporate and bank side, which is where you see a lot of experimentation. That is where AI could be helpful, for instance making sure documents are compliant, but I believe this will take some years.
Shroff: Where we’ve seen the most traction is the places where we’ve been able to reduce friction, for example in how the client is accessing trade finance products. That’s progress for a bilateral relationship, but solving for the whole system is much more difficult. However, we are seeing a lot more collaboration. What needs to happen now is to have data standardisation and platform modernisation underpinning all of that.
Chong: Improving bank efficiency is one of the areas we can target pretty quickly, for example implementing AI into fraud management, combing through credit reports to look at linkages of clients and their counterparties in the ecosystem and so on. Looking at the big picture, digitalisation has generally reached a plateau and saturation, so we need to take a step back to examine how we want to allocate resources, time and money to solve specific pain points in trade finance through digitalisation.
Morita: From time to time, we have seen new technology appear and then disappear again. But new requirements are also appearing, and each customer has different requirements, so we can’t develop everything on our own. We need to accommodate what our main clients need, and if clients request something, look at how we can accommodate that. But more importantly, trade finance always relies on compliance, and we should not overlook the importance of efficiency and accuracy in that area. The question is how to invest in something internal that is so important.
GTR: Improving sustainability in trade remains a complex and challenging issue. What trends are you seeing in terms of moving towards net-zero carbon emissions, and are you seeing changes in other areas of ESG-related financing?
Moodey: This may be a bit controversial, but I think there’s a western worldview of ESG, which often comes down to net zero and those sorts of topics. But if you look at the Asia Pacific region, I think the social aspect can get ignored. The western world has enjoyed cheap hydrocarbons for many decades, and there are economies that are emerging now which might ask why they can’t now enjoy some of that.
Alternatively, if the western world does want to help those markets transition, it should help them do that. The social aspect means lifting people out of poverty, and that’s not diametrically opposed to net zero, but you do need to provide power to many hundreds of millions of people. In this part of the world, the ESG topic is not as simple as saying we’re heading towards net zero, and it’s worth asking whether we should impose a western worldview onto the Asia Pacific.
Kumar: Demand for a more sustainable world will keep growing as you have more unexpected events driven by climate change, but different parts of the world will respond differently. If you do have a net-zero goal, how are you going to fund that transition? There is an ultimate cost to doing things more sustainability, and do you bake that cost into your products so the consumers are paying for it? As we speak, I don’t think this issue has been solved.
Having said that, corporate governance requirements, boards and investors are driving companies to report on ESG policies and procedures, and this will push them to take more action. Awareness is definitely there, progress is being made, but I think it will take time to answer that funding question.
Tandy: The initiatives and principles related to Southeast Asia are slightly different to the west. I’ve been on courses on sustainable finance in London and in Thailand, and the tones are different. But companies in Southeast Asia are the recipients of regulatory change in the west, because larger companies from the west are going to the suppliers to try and support them around scope 3 emissions.
Newer technologies could help. When we went from coal to gas to renewables, it was pretty expensive every time that transition was made. But if you can leapfrog the transition into new tech, that could bring significant opportunities.
Agarwal: In the apparel industry, we’ve partnered with a major retailer to provide short-term capex loans to its suppliers in Bangladesh and India, enabling them to transition to renewable energy sources. This effort aligns with broader initiatives by major apparel brands to improve sustainability across their supply chains. To accelerate this transition, multilaterals and banks can collaborate to create financing structures that support entire supplier networks. By enabling access to collective financing, these efforts help bridge the transition capex gap and could potentially serve as a model for other industries.
Shroff: If you slice the numbers on bond and loans data, we are seeing a reduction in sustainability-linked bond issuances and loans, while there has been an increase on the green side. We are seeing similar trends ourselves, where we have a lot of demand on the social loan side and for clean energy financing, but it’s more muted on the sustainability-linked side. Investors and regulators are putting a lot more focus on the quality of those issuances. Is enough happening from a net-zero perspective? We are having client-by-client discussions to understand what their transition plans are, and how we can support them, but ultimately this is not something banks and their clients can solve on their own. You need governments and organisations to provide the right incentives and disincentives to facilitate investments.
Han: There is growing interest among our clients in the ESG trade finance space. To support their ESG objectives and catalyse the greening of supply chains, we have been providing sustainable trade finance solutions across products that include letters of credit, guarantees, trade receivables purchases, supply chain finance and Islamic trade facilities, both on a bilateral and syndicated basis. We have seen greater demand for these products, especially in markets such as India, Hong Kong, Singapore and Oceania. While banks play an important role in the net-zero transition, I hope there could be considerations around capital relief for ESG financing.
Morita: I would also ask who pays that cost. Back in 2010, I was working in structured finance for environmental solutions, and at that time the power generation cost from solar power was very expensive. It means people would come to the bank and ask for financing because it is good for the environment, but it might not be economically workable. We need to balance both of those things.
However, over time, governments have provided more support and the technology has improved a lot, and that evolution means the economic aspect has started to improve. It’s more affordable now, the mindset has changed significantly, and there is momentum behind it. Banks can take a bigger role in financing potential environmental projects.
GTR would like to thank Bank of America for hosting this roundtable discussion.
