The majority of large European corporates are concerned about the price increase in trade finance services and products expected to result from the implementation of Basel III, a survey reveals.

The 2012 European trade finance study, carried out by consultancy Greenwich Associates, shows that 80% of the surveyed 300 financial officers from large European companies, as well as nine out of 10 from companies in the FT 500, expect pricing on trade finance products and services to increase.

“In light of the funding and capitalisation issues facing European banks, large companies are not only concerned about pricing on trade finance services, they are also keeping an eye on banks’ shrinking risk appetite and the availability of trade finance in their important markets,” says Greenwich Associates consultant Tobias Miarka.

Lothar Meenen, managing director and head of trade finance and cash management corporates, Germany South, at Deutsche Bank, explains to GTR that the greatest concern in terms of price is the proposed hike in the credit conversion factor (CCF), which will rise from 20% to 100% in 2018 if current plans don’t change.

“Should this increase come into play, it could have some potentially serious – and unforeseen – implications for corporates. These include a significant rise in trade financing pricing, a restriction in banks’ lending capacity, and perhaps difficulties in accessing trade finance solutions at local level as some banks are forced to retrench from certain products and/or markets,” he says.

However, Meenen believes the ongoing negotiation to change the Basel III draft rules for trade finance will ensure this particular concern is addressed. “Effective lobbying from the banking community and industry bodies – such as Baft and the ICC – combined with broader recognition of the link between trade finance and the real economy is expected to result in the eventual CCF being reduced to 50%, or even brought back down to its current 20%, in 2015,” he says.

He also points out the competition between trade finance banks will also act as a safeguard against any price rise, which is seen as a last resort.

The Greenwich survey also reveals that the market share between strong regional banks and global players could be shifted by the implementation of Basel III, with global banks leveraging international cash management relationships to win trade finance business, as they have done in Asia. About one-third of the large European companies participating in the study say they plan to increase the share of trade finance business they do with Europe’s top five banks.

“Competition between local and international banks in trade finance can still be characterized in part as price versus value-added,” Miarka adds. “Generally, global banks compete less on pricing and the flexibility of covenants and more on the value companies can derive from their international networks, high-quality documentation and innovative ideas.”

According to Greenwich Associates, 64% of large European companies use trade finance products and services for deals within Western Europe and 62% use them for Asia Pacific transactions. Business in Asia accounts for nearly 20% of the bank fees paid by European companies for trade finance, while domestic transactions account for nearly a quarter and business in other Western European countries make up 21%.

The survey identifies Deutsche Bank and BNP Paribas as the most widely used trade finance providers in Europe, as each of them is used for these services by around a quarter of large European companies.

Greenwich Associates consultant Markus Ohlig points out: “At the country level, however, the strength of domestic and local banks becomes clear. Two examples: Commerzbank and Deutsche Bank tie for first place in German market penetration and Nordea leads all competitors in both market penetration and quality in the Nordic region.”