Global trade continues to endure one of the most persistent and prolonged periods of turbulence in living memory. With multiple challenges to contend with, in parallel with the technology and ESG-driven changes underway, banks and businesses alike are having to adapt and accommodate a host of new factors and requirements in their strategies. In collaboration with BNY Mellon, GTR examines how stakeholders across the world are faring in the face of adversity, and how financial institutions are enhancing their offerings to drive global trade opportunities in these challenging times.


Roundtable participants:

  • Azeem Azmi, regional head trade finance, Group Transaction Banking, CIMB Bank
  • Pablo Ballesteros, global head of trade solutions, Santander CIB
  • Joon Kim, global head of trade finance product and portfolio management, Treasury Services, BNY Mellon
  • Sandy Marrone, head of product for trade finance and FX, KeyBank
  • Massimo Ortino, head of group correspondent banking, UniCredit


GTR: What are the biggest supply chain challenges currently being faced and how are financial institutions (FIs) adapting their trade finance offerings to address them?

Ballesteros: The combination of the geopolitical risk linked to the war in Ukraine with the tougher macroeconomic environment is particularly challenging for corporates. The cheap liquidity available in the past to build safety stocks, support long-tail suppliers and buyers and enter new markets simply isn’t available now.

Kim: With accessing liquidity difficult for many suppliers across the globe, corporates are facing profound challenges when it comes to securing their supply chains and managing payment risks. We are providing solutions through our robust supply chain financing (SCF) programmes, which act not only as a cash optimisation tool for corporate buyers but as a means of supporting the working capital needs of their suppliers.

Ballesteros: We’ve developed solutions such as pre-shipment structures to help anticipate cashflows, inventory finance, dynamic discounting and buy now pay later (BNPL), which ultimately improve SMEs’ liquidity either by accelerating access to cash or deferring payments. Interestingly, these products are also altering the perception of trade finance from simply a traditional receivables-focused solution to a strategic tool to enhance working capital and manage inventory and supply chains.


GTR: How are FIs innovating to improve the client experience, and where is their focus with respect to moving away from manual, paper-driven processes to digital solutions?

Ortino: Enhancing the client experience is a core objective for banks, and it’s through integration and cooperation with technology providers that we can further progress digitalisation, including accelerating the automation of processes, such as supplier onboarding.

Kim: We are committed to investing in value-added innovations and capabilities to support our clients. And this isn’t always about brand-new solutions and exploring what’s possible for the future. We have worked diligently to enhance our suite of existing trade finance offerings to help overcome challenges here and now. One example relates to the implementation of our outsourcing solutions. Now, rather than clients having to commit to integrating the necessary technology into their back-office systems, our outsourcing solutions can be accessed through our portal. These solutions are designed to result in time and cost savings, and greater flexibility regarding which outsourcing services they need.

Marrone: Banks are looking to streamline trade by creating digital ecosystems that reduce costs and replace paper with digital data flows. These are closed ecosystems where members can record transactions and payment undertakings digitally, most often using a permissioned blockchain. Numerous blockchain consortiums to support this activity have been established, however, there’s a clear need for interoperability between these platforms to replicate in digital form the ‘free negotiability’ of traditional trade instruments. As these systems are tested using real-world transactions, we will most likely see one or two emerge as platforms that enable true interoperability.

Ortino: We need to establish a more cooperative technology infrastructure – an open network where everyone can participate and be included. Legal reform is key to enabling such ecosystems and we are witnessing some advancements. For example, the UK has adopted a model for the electronic transfer of records, which will be key to unlocking not only digital bills of lading and promissory notes, but also potentially other documents that are not negotiable. If they can be adopted on an international level and supported through open, shared technology that’s interoperable between banks and countries, that could really create a new international environment, with trade truly becoming something different to what we know today. We should have ambitions to deliver this in less than 10 years from now.


GTR: How can embedded trade finance support clients in today’s landscape? How do you think it will develop in the coming years?

Ortino: Embedded finance could be transformational. But something to highlight is that we are talking about changing processes that have been ingrained for hundreds of years across a global industry, the size and scale of which is almost unfathomable. This idea of reengineering processes creates a degree of hesitance and uncertainty in many participants because of the sheer impact it could have, and the costs associated with it.

Azmi: Adoption by large anchors or principles is key, as they will have the ability to impact downstream ecosystems. Non-proprietary and low-technology platforms will enable faster, straight-through smaller ticket-size financing. As critical mass is achieved, this will enable a broader investor base, in addition to traditional lenders.

Ortino: Embedded finance also has huge potential to address the trade finance gap. Developing an offering of broader, more inclusive financial services for all – including SMEs – that’s richer and easier to use, will help to democratise trade finance and close this gap. So there are huge benefits that should be visible not only to banks in terms of business opportunities, but also to regulators, politicians and the industry overall.


GTR: Trade asset distribution is a valuable tool for balance sheet optimisation and enabling trade finance support to be accessed by those who need it. How are you leveraging these capabilities?

Ortino: Historically, asset distribution has been used mainly for risk mitigation. Now, it has almost become a necessity. Models and capital requirements for banks are changing, so being active in the market and redirecting your origination efforts is essential as a means of delivering the right risk-adjusted profitability and for banks to stay in business.

Ballesteros: Trade asset distribution is absolutely a core pillar of our strategy for two key reasons. Firstly, being able to distribute large letters of credit, SCF or receivables programmes, allows us to offer a single point of contact to our customers, leading to a better customer experience and improved processes. Secondly, the ability to rotate our balance sheet enables us to keep growing our offering and meet trade finance demand in new markets or client segments. We have developed trade distribution tools across all asset classes and kinds of investors – from banks and institutional investors to insurers and multinational agencies – to meet these targets.

Azmi: It’s definitely a very powerful area, particularly for banks whose footprints are restricted but whose appetite is quite broad. It provides the opportunity to pick up exposure without having to invest in origination resources. In Asean, credit insurance is gaining momentum. The way it’s treated from a local regulatory perspective has improved, so we’re starting to see a lot more appetite on the cross-border side, enabling greater balance sheet optimisation. Another trend is that large multilateral development banks are increasingly moving into corporate supply chain risk mitigation structures.

Kim: To meet the higher levels of trade finance needed in the current environment by both our FI and corporate clients, we are expanding our robust distribution channels by offering these short-term, self-liquidating trade finance assets to counterparties in the secondary market. This means we can now accommodate larger transactions, rotate portfolios to create more credit availability for clients, effectively manage country, sector and obligor limits, as well as reduce capital costs. To maximise the effectiveness of this risk-sharing model, we are also looking into alternative channels and platforms to supplement our operating model in the future.

Azmi: Sustainability-linked finance and Islamic finance are areas with growth potential, and are particularly interesting. Islamic trade finance products in Asean markets like Malaysia are advanced, and the appetite is there. So if you can structure Islamic deals in that space, you will potentially have a larger investor appetite.


GTR: How do you view today’s risk environment? What are the main challenges for banks and businesses?

Ortino: A lot of challenges have been brought about by increased compliance requirements for banks. An unintended consequence of this can be overcompliance, including de-risking, which can result in access to basic financial services being denied to a lot of companies, especially in emerging markets. We are increasingly seeing banks in regions such as the Caribbean, discussing being almost cut off from the correspondent banking network. It is important for a balance to be achieved between the need for robust compliance requirements and the need for FIs to remain inclusive and accessible to the widest possible number of businesses. This should continue to be raised by banks during strategic dialogue with regulators and central banks.

Marrone: Some 200,000 correspondent banking relationships have disappeared over the past decade. The adoption of new anti-money laundering (AML) regulations involving sanctions has played a significant role in recent de-risking. The tightening of international guidelines and the imposition of high fines by regulators to banks for non-compliance has resulted in a heightened perception of the AML risk affecting trade finance. Possible ways to address these challenges include the establishment of a central know your customer (KYC) registry that can be used globally, guidance on interpreting regulations and training on basic AML and KYC rules.

Azmi: The level of compliance processes banks need to carry out has risen dramatically. The good news is that technology that we can leverage is out there, and I don’t think the cost is prohibitive. Ultimately, the buck stops with banks when it comes to compliance, so there will always be a need to retain a degree of manual checking. But by applying AI, for example, to the ’first-level filters’, and using it for random sampling and pattern identification, it can make compliance processes significantly easier and more efficient, and help to reduce false positives.

Ortino: A lot of technology adoption is taking place around the checking of documents. I’d emphasise the importance of involving experienced compliance professionals in discussions around adoption, so the right tools can be implemented in the right way. This is a challenge because we don’t have many experts in this business at every level, and there’s a clear demand for people with these capabilities.

Kim: Compliance checks are definitely one area where automation can be applied. But now we’re going a little beyond that, exploring how we can execute and process the actual deals in a more automated fashion. In doing so, we can deliver improved standardisation and efficiency to meet clients’ evolving needs and enhance the client experience.


GTR: What is the role of trade finance in facilitating clients’ ESG requirements and strategies?

Azmi: The effort required to educate the whole industry is massive, and it will take time. That’s why I think we need to start looking at public-private partnerships (PPPs). Having a PPP programme could in itself be linked to ESG, and financial inclusion and diversity are areas where this could easily be applied. It’s a win-win.

Azmi: When it comes to ESG, trade finance has been primarily focused on infrastructure projects. Markets need to evolve to create a greater pool of ESG-based trade finance and working capital solutions. Additionally, rather than focusing on ‘binary’ definitions or ‘absolutes’ with respect to whether something is green or not, market solutions and incentives should be structured to reward businesses based on their ESG progress and journey. To achieve this, there needs to be market scoring benchmarks, which initially may not be completely aligned with global standards.

Ortino: Another point to consider is the extent to which ESG could further exclude smaller companies from the market. SMEs simply don’t have the means to implement the reporting structure, due diligence and all the requirements coming into force. Will banks therefore be forced to further deny access to finance to these businesses – on top of the overcompliance-related de-risking we’ve already discussed – on the basis they can’t report their ESG activity?


GTR: What does the wider global trade industry need to do to ensure ESG efforts can most effectively be supported?

Ortino: It’s very challenging to create clear standards and a framework for trade, simply because it’s so huge, diverse and granular. At this stage, it’s potentially more important for banks to adopt an advisory role to support clients’ strategies, than simply selling a green product. Being open to cooperating with other stakeholders and providers is also vital in order to be able to deliver the solutions, the value proposition, to meet clients’ requirements.

Azmi: Rollout and alignment of taxonomy will take time. There needs to be an interim roadmap around how smaller businesses can embark on the journey. Widescale market education is key.

Ortino: When it comes down to it, at the heart of everything we’ve discussed is digitalisation. Through digitalisation comes the ability to work with data, segregate assets, address compliance issues, incentivise sustainability efforts. So, rather than developing an abstract framework for all the different elements, the priority should be to try to find a way to digitalise the entire process, resulting in mass benefits such as ESG progression, lower costs, efficiencies and more access to finance. It’s all interwoven. Obviously, developing such an interoperable, open infrastructure where everyone can operate requires coordinated, international legal reform and cooperation by many stakeholders. It is of course ambitious, but it’s our responsibility to build this capacity for the future of our business.