Trade and export financiers tell GTR that they are widening their support for UK exporters, writes Kevin Godier.
UK export flows have picked up again since the financial crisis, bringing an accompanying need for export and trade finance support, say bankers based in
“From our perspective, export business is booming – the level of export finance we have provided is over 50% ahead of this time last year,” says Mark Emmerson, head of trade & supply chain, Europe at HSBC. Looking across the rest of 2011, he points to HSBC’s latest UK Trade Confidence Index (TCI), in which over 90% of UK respondents believed that both the need for and access to trade finance will increase over the next six months.
London Forfaiting Company (LFC) has also experienced improvements on the enquiry side, compared to 12 months ago. “However, overseas buyers remain cautious on major investment in new capital equipment and product upgrades in the current economic climate, so while we are seeing more business, it is not a massive increase,” notes Ian Lucas, LFC’s head of UK marketing.
He adds that recent export destinations for LFC-financed equipment are Russia, India, Bangladesh and Sri Lanka, also citing Brazil and Peru and a handful of African markets, especially Nigeria, Ghana, and Tanzania.
Michael Gilham, director, international finance solutions at Lloyds, comments: “From the activity that we see, Asia remains the fastest growth market for UK exports.
“This is expected to accelerate, as relations in the region strengthen, demonstrated by the various trade missions, the visit of Chinese Premier Wen Jiabao and conclusion of over £1bn of deals with commitment to open the Chinese market beyond Beijing and Shanghai for UK companies.
As growth in the EU and US remains slow, the ability to access fast growth markets like China will be key to the successful future of UK companies,” he says.
“As a bank we are having a fantastic year on the back of Asian enquiries,” says Peter Sargent, ANZ’s head of transaction banking, Europe, who flags up Australia’s US$750bn or so of infrastructure needs over the next decade as an ideal opportunity for UK and European contractors.
At RBS, Louis Robinson, Emea trade sales head, global transaction services, highlights “a huge increase in demand from exporters targeting China and India, and also across much of the Emea region”, but adds that many UK manufacturers are not as focused on exports as other countries.
“Most clients tell us that export markets are holding up well overall,” comments David Lilley, London-based head of European trade finance, in ABC International Bank’s (ABCIB) global trade finance group.
Although the turmoil in some parts of the Middle East and North Africa (Mena) region, ABCIB’s traditional area of expertise and focus, is now affecting trade volumes to and from these countries, Lilley underlines that “UK exporters are proactively seeking new markets and we are generally seeing good geographical (Mena and non-Mena) and sectoral diversity in trade enquiries”.
“Indeed UK exporters are not shying away from countries which are often perceived as ‘difficult’ – such as Iraq and Sudan – and seem intent on maintaining a longer-term interest in some of the currently more troubled Mena markets,” he adds.
One area where the UK could improve its performance significantly is in manufacturing exports.
“[This] has been lagging substantially behind European countries such as Germany and Italy,” notes M. Vasudevan, head of trade at ICICI Bank UK, which supports significant levels of UK exports to India, particularly in their bonding requirements.
“This can be quickly improved if increasing numbers of small and mid-segment companies can evolve into the hi-tech engineering sector, where the UK’s export performance and its R&D are already comparable with the US and Japan,” he contends.
So are UK-based banks doing enough to encourage British exports to the faster growing economies? According to Glyn Powell, chief operations officer at the newly-established Trade Finance Partners in London, smaller to medium-sized exporters (SMEs) are still missing out enormously, despite the Project Merlin commitments of the four UK high street lenders, plus Santander, to lift business lending to UK SMEs.
“Lending to smaller businesses is massively down since 2008, and banks will not lend against orders, only against balance sheet, which shows that many major banks prefer trade services and are not really engaging in trade finance. This is providing us with some excellent new business, but we are really seeing companies that we shouldn’t be seeing,” says Powell.
Another financier, who prefers anonymity, is more scathing. “There is no doubt that access to business borrowing has been high on the political agenda in the UK. However, some banks here are not organised, staffed and equipped to meet the needs of potential exporters,” he says, adding that “there is a glaring difference between a bank having a product and meeting a need, which must always involve talking to corporates about the procurement and sales sides, and the terms of trade.”
Even more important, he claims, has been “a continual brain drain from trade and export finance teams, which is a huge issue”. However, “the real elephant in the room, which everybody is ignoring, is the ability of UK banks, post-financial crisis, to lend money generally. A few UK banks now lack the capacity to utilise balance sheet in any substantial form, to meet the needs of UK companies, and so are cherry-picking the invoice discounting and letter of credit (LC) confirmation business they carry out for exporters,” he argues.
“The real elephant in the room, which everybody is ignoring, is the ability of UK banks, post-financial crisis, to lend money generally.”
“There is a liquidity issue for markets in general,” says LFC’s Lucas, contending that among other LFC selling points, its country coverage, range of acceptable obligors within a country, and its potential five-year payment tenors position it favourably against competitors with less appetite for the emerging markets.
Balance sheet constraints afflicting UK banks have been a key driver of a significant increase in the new range of products offered by the UK’s Export Credits Guarantee Department (ECGD).
The process began with the late 2009 launch of the department’s LC guarantee scheme for higher-risk markets. Aimed especially at smaller UK companies struggling to obtain LC confirmations from commercial banks in the wake of the global crisis, this scheme has been followed up this year with a bond support product and an export working capital product, plus the re-launch of its export insurance policy to cover all export categories other than consumables. Rounding off a theme that a more flexible approach to exporting is now at work in Whitehall’s corridors, the department has also introduced an FX credit risk support mechanism.
“Unlike in the past, when it has paid lip-service, the UK government is really trying to push an export-led recovery,” comments Trade Finance Partners’ Powell. “There has been a sea-change in policy from the top level, and ECGD is also trying to go through people other than the high street banks,” he says.
The bond support scheme – under which ECGD shares up to 80% of risks on an exporter with banks – has already enabled Glasgow-based Clyde Union Pumps to issue up to £25mn of new bonding for equipment supply to the Fuqing 3 & 4 nuclear power plant in Fujian Province in China.
HSBC arranged the bond cover, and has been working with the UK government in shaping and implementing ECGD’s new raft of initiatives.
Among these, ECGD’s export working capital product can be extended for up to two years on specific export contracts, while the FX product would support the capacity of banks to provide specific FX hedging for export contracts receiving support from another ECGD product.
Steve Roberts-Mee, ECGD’s head of communications, remarks: “The level of enquiries to ECGD is up, quite markedly, since the advent of the new products. We are reviewing the new products continuously, but they are not set in stone.”
John Bugeja, head of trade products, global transaction services, says RBS is now seeing “the first demand in some years” for supplier credit financing (SCF) transactions from ECGD. He acknowledges that the traditionally intensive SCF paperwork “is still a heavy burden”, but points to “a number of deals on the table now, which could set fresh precedents”.
Beyond ECGD, banks are linking with government in a number of ways, including workshops and other training and awareness events to support exporters that are held in conjunction with UK Trade & Investment (UKTI).
One of HSBC’s thrusts to boost UK trading with China has been the launch of a comprehensive UK-based renminbi (Rmb) proposition, which enables business customers to carry out and settle cross-border trade deals directly with China using Rmb currency accounts for receipts and payments and FX options.
“The range of Rmb products and services now includes documentary credits, documentary bill payments and guarantees, which customers can initiate and manage via the internet trade services module on HSBCnet and via business internet banking,” says Emmerson.
Other 2011 initiatives include the launch of the bank’s Trade Connections campaign, designed to provide European businesses with the requisite insight and knowledge to maximise potential overseas opportunities.
HSBC has also been increasing its dedicated front-line trade specialists in the UK, “across a number of trade departments,” Emmerson emphasises. “There is still some way to go however. Education remains key to getting British businesses exporting, particularly around the opportunities available in international trade and the help that can be provided by banks around finance and risk mitigation.”
Bugeja observes that RBS still sees a number of corporates that resist exporting. “They have the product but need encouragement. As a trade finance bank, we can educate them and also ensure they understand that it’s easier to support them on a more structured basis. We have to make clients aware that our appetite will be enhanced if finance is structured to match the underlying trade cycle, as this ensures that we have much better visibility of the cash flows and can better evaluate and manage the risks associated with a transaction. We’re trying to do more of that at the mid-corporate and SME end.”
Gilham adds that an SME Business Exporting Survey undertaken by Lloyds, “reinforces the view that basic concerns around payment and FX risk, bad debtors and resource constraints to investigate new markets are some of the biggest barriers” to exporting.
“Through trade finance, we can help the customer manage the financial elements of these risks,” he says. Lloyds has provided particular value, he underscores, in its response to clients’ increasing demand for cost-effective and operationally simple bonds and guarantees.
“We assist our customers by helping them minimise use of their guarantee facilities, so that they have the availability when they need it. The key to achieving this is the technical support that we provide when negotiating their guarantees, potentially reducing the value and tenor of the guarantee and proactively managing the guarantee once issued to reduce or cancel it at the earliest possible time. This can be the difference between our customers’ ability to agree the next contract or not,” he comments.
As part of the push to encourage British exporters to be more active, RBS has transformed its international trade services website into a more user-friendly space.
Bugeja explains: “Exporters and importers are taken through a journey, based on their level of expertise. Beginners have their hands held, and can learn about the risks, while experts jump straight to the products.”