As the world’s economy picks up, industry experts have detailed how Singapore is at the heart of Asia’s trade finance growth.
Speaking at last week’s GTR Asia Trade Finance Week, Teo Eng Cheong, CEO of International Enterprise (IE) Singapore, said that Asia is at the forefront of the WTO’s trade growth projections and “it will continue to grow, led by China, India and Asean. Singapore is located in the centre of this dynamic region”.
The country is already a “major hub for actual physical movement of cargo”, but Cheong adds that it is “also a major hub for global trading firms to set up their trading and risk management operations”, especially in the commodity sector.
There are now more than 400 global traders with significant operations in Singapore, with trade from their offices totalling US$1.3tn in 2013. Rajiv Biswas, senior director and Asia Pacific chief economist, IHS, says to GTR: “We’ve seen a very big increase in intra-Asian trade and that’s been driven out of China, but we’re also seeing a lot of momentum in trade finance in managing these trade flows, which has been growing very dynamically over the last few years, particularly from the Singapore hub.”
The increase in Rmb transactions is one of the biggest trends in the region and Singapore’s Rmb clearing activities have expanded significantly, with Rmb6.9tn being cleared through the country in Q1 2014. More than 73 banks in Singapore have opened Rmb clearing accounts to service clients.
Cheong states that deposits in the currency increased by over 90% to Rmb220bn in March 2014.
The ICC’s Global Trade and Finance Survey 2014 reported that global commercial LCs have continued to see double-digit percentage contraction in volume. Cheong says: “As trade finance activities gradually shift towards open account terms-of-payment, exporters will increasingly need other forms of mechanism to protect against counterparty risks.”
“This will lead to higher demand for credit and related insurance products and as Asia’s leading reinsurance hub Singapore is well-positioned to meet the insurance needs of businesses,” says Cheong.
New frontier markets
“We’re also seeing some of the frontier markets in Asia now starting to come up and trade finance is focussing on these countries,” says Biswas. He highlights Vietnam, Myanmar, Cambodia and Laos as markets which are rapidly growing, but warns that the countries “don’t have very well developed systems of their own” so risk is high.
“More dedicated risk management and a very good understanding of the political risk landscape is needed to deal with those frontier markets.”
Banks’ Singapore operations are well-placed to explore these frontier markets and facilitate funding.
Noritoshi Murakami, general manager, Asian transaction banking office, transaction banking division at BTMU, says to GTR: “Singapore has easy access to Asian countries but also importantly to the Indian market. There will be a lot of trade in the future to the Middle East, Southeast Asia and China. Singapore can also access the Oceania countries, Australia and New Zealand.”