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Trade Leaders Interview: Marie-Laure Gastellu, Société Générale

Big banks’ trade finance revenues marginally improved over the first half of the year, bucking the negative trend in the industry for the past half-decade.

Trade finance revenues among the top 10 transaction banks grew by 2.9% in the first six months of the year, according to the latest data from Coalition, a financial services business intelligence provider. This marked a 2% improvement on the first half of 2017, and is the first half-yearly improvement Coalition has recorded since 2012.

Despite the industry facing some of the most challenging geopolitical environments for a generation, there was a notable growth in commodity trade finance and structured trade as a whole.

Traditional trade finance revenues were actually 1% lower than the previous half-year, perhaps signifying a wider shift towards more structured products among the global banks.

The stats also show that transaction banking revenues reached their highest levels for eight years, with Asia Pacific growing faster than any other region. Globally, transaction banking grew by 14.8% for big banks, with 6.3% of this growth coming in Asia Pacific.

This can be attributed to large trade volumes and wider spreads, while the effect of appreciating currencies spurred growth in Europe, the Middle East and Africa.

All things considered, this data flies in the face of the industry mood, which is one of fear and concern, with the world’s two largest economies embroiled in a trade war that shows no signs of abating.

The figures measure the performances of the top 10 transaction banks globally: Bank of America Merrill Lynch, Barclays, BNP Paribas, Citi, Deutsche Bank, HSBC, JP Morgan, Société Générale and Wells Fargo.

Many executives from these banks have concluded that while 2018’s trade finance performance has so far represented an improvement on the last few years, the uncertainty caused by the trade war threatens to unravel this.

“We have seen that in the last 12 months volumes have gone up, ticket prices have gone up, or the value per ticket has gone up, rather. So, it’s actually been quite positive over the last 12 months,” said one head of supply chain finance at a big bank, adding: “So we’re all happy making targets, making money. It may be different next year, but for now it’s okay.”

The figures must be considered with the knowledge that the first tariffs only came into effect on July 6, 2018. This saw the US slap a levy on US$35bn of Chinese imports, which was swiftly retaliated against by China. On August 23, the US and China both imposed their second phase of tariffs, which took the total to US$50bn on both sides.

On September 24, the third wave of tariffs came into effect. This saw the US slap a 10% tariff on US$200bn of Chinese imports. In total, 12% of total imports to the US are now covered by tariffs. On the same day, China enacted tariffs on US$60bn of US goods.

There’s some uncertainty as to whether these will actually affect the trade flows funded by many of the biggest banks. However, it will almost certainly affect the business and investment climate, which helps foster strong trade growth and flows.

“In terms of the sentiments that we hear from the client, in the last month, we think they’re unduly worried about it. I think the supply chains are unduly worried about the US-China headline news. The supply chains do get rebalanced to South America, to Asean and so on and so forth, so goods may not now have a label of ‘Made in China’; they will have a label of ‘Made in Cambodia’,” says a head of transaction banking sales for another major bank.

Generally though, most executives are expecting some disruption to their global business, but there’s a feeling that those banks which have strong intra-Asian trade businesses may weather the storm and maybe even benefit.

In its latest outlook for emerging Asia, released this week, the Asian Development Bank (ADB) singled out the region’s robust economic strength in the face of serious headwinds. Supply chains have long been expected to shift towards Southeast Asia, given the relative rise in production costs in China. The trade war will likely accelerate this, but countries such as Vietnam and Cambodia could benefit.

“However, these players [developing Asia] may gain over the medium term as trade is redirected within global supply chains to economies producing similar goods, benefitting in particular Southeast Asia and the newly-industrialised economies,” writes Yasuyuki Sawada, the ADB’s chief economist.

This is described by the global head of trade finance for Standard Chartered, Farooq Siddiqi, as “green shoots that banks like ours are focusing on, because that’s where the revenue growth will be”.

He tells GTR: “Traditional factors which drove trade growth in the past, was trade between Asia and OECD countries: EU and US would consume, Asia would produce and sell to those markets. That model is fundamentally changing. Mostly, people will produce to consume it locally, look at markets like Indonesia.”

The Coalition data is released on the heels of the latest World Trade Monitor from the respected Netherlands Bureau for Economic Policy Analysis (CPB). This shows that the volume of world trade increased 1.1% in July, having decreased 0.3% in June. This is driven by emerging market demand, but is well below the growth levels seen last year.

Commenting on the data, Nikita Shah, global economist at Capital Economics, says: “We expect the slowdown in world trade growth to continue next year as global demand weakens. Meanwhile, US-China trade tensions have risen – both countries imposed further tariffs on each other’s imports yesterday. But the aggregate impact on the global economy should be fairly small.”