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FIMBank has big ambitions for 2010. Not only is it returning to the Indian market, it is also setting its sights on new markets in Russia and Sub-Saharan Africa. Rebecca Spong meets the team in Malta.

The final months of 2009 were exceptionally busy times for the Malta-based FIMBank team. Jumping from one emerging market to the next, the team, led by bank president Margrith Lutschg-Emmengger, has been setting up a number of new factoring firms. Joint venture (JV) firms in Russia and India were both set up in the final quarter of 2009, and a JV in Romania is in the pipeline.

However, the bank is not solely focused on its factoring business line. Over the next 12 months, the Sub-Saharan Africa market as well as the MENA regions are on the bank’s radar, and it is in these regions that FIMBank hopes to promote its whole range of trade products, from traditional letters of credit (LC) to more structured commodity finance deals.

“Africa is one of the key areas of growth for FIMBank,” comments Aly Siby, head of the Africa desk at the bank. “This is really our niche market where we can compete against the typical banking players in terms of risk and in terms of our knowledge on how to assess country and bank risk,” he explains.

FIMBank’s ambitions are built on solid financial foundations, with their unaudited half year results for 2009 revealing a US$2.92mn after tax profit. Indeed, demonstrating that FIMBank weathered the downturn fairly successfully, these profit levels are very similar to those recorded in 2008.

However, the profits from the first six months of 2008 were further boosted by the successful sale of its Indian factoring operation Global Trade Finance (GTF) in March of that year. This sale alone contributed US$29.5mn to the bank’s profits.

Throughout 2009 the bank refocused its core business with the clear target to create the stepping stone for further growth and development for the entire FIMBank Group.

According to Armin Eckermann, group head of banking, “The banking group at FIMBank underwent a major restructuring and refocusing to create a platform to handle more products and more clients. New hires in key areas like client management, transaction management and control as well as process-oriented back office activities will support the new set up in Malta and elsewhere. The bank’s bottom line results of the years ahead will be an evidence of the successful implementation of these initiatives.” Eckermann is convinced that the new set up will help grow the client base in Africa and the Middle East.

Factoring growth
The success of FIMBank’s business model of setting up factoring JVs, and then selling them off led the bank to return to India in November 2009 where it signed a JV with Punjab National Bank (PNB), India’s second largest public sector bank; Italy’s Banca IFIS; and Blend Financial Services, a global financial services company offering debt syndication, cross border mergers, acquisitions and advisory services, to set up a Mumbai-based firm called India Factoring.

Under the terms of the agreement FIMBank will retain a 49% interest in the venture.

“India is a special market for us following our experiences with GTF – we feel very comfortable in this market,” comments Joao Costa Pereira, first vice-president – head Mediterranean factors.

“We have a proven team in place and all the ingredients for a successful operation,” he adds.

According to FIMBank the potential growth for factoring in India is extensive. The bank judges the product’s market potential by viewing factoring turnover as a percentage of country GDP.

In the developed world, particularly in the UK, factoring turnover can be as high as 13% of the country’s GDP. In other European countries like France, Spain, or Italy, it is usually around 6-10% of GDP.

However, in India it stands at around the 0.65% mark, and this is typical for most emerging markets.

Pereira observes that one emerging market that has seen a successful increase in factoring is Turkey. Factoring turnover in this country stood at €4bn in 2002, increasing to €18bn in 2008, and reaching an estimated market penetration of 3.49% of GDP.

When setting up a factoring JV, FIMBank enters as the technical partner providing expertise, the IT platform and back-office services. However, it always ties up with a local partner with local knowledge and a strong customer base.

Often a multilateral is also brought into the venture for extra support, as was the case with the recent Russian JV signed in December last year, where the IFC played an important role.

Pereira refers to the Russian JV, known as FactorRus, as the “ideal” structure for their factoring operations, with FIMBank taking a 40% stake, the local bank, Transcapitalbank, taking 40%, and the IFC making up the rest.

Market penetration for factoring in Russia is slightly higher than India, currently estimated by FIMBank to stand at 1.36% of GDP.
Within its factoring operations, it is export factoring that has been targeted as a growth area.

Pereira explains: “In many countries we deal substantially with domestic factoring but there is a trend towards an expanding export factoring business.

“Although export-related factoring represents only 13 % of total factoring business, there is a fast developing shift away from domestic factoring.”

FIMBank also signed a cooperation agreement in Romania in late 2009, with the ultimate aim of setting up a factoring JV. Romania was not a key target market for the bank, however it saw an opportunity to partner up with a good local entity, Romfactor.

Conversely, FIMBank is yet to establish a presence in one of its key target markets Brazil. This Latin American country is definitely on the bank’s sights, and talks to find a suitable local partner will be continuing into 2010.

Expanding boundaries
Apart from factoring, FIMBank wants to further expand the range of products it offers, particularly in the Sub-Saharan Africa and MENA regions.

The bank has been very active on the importing side of the trade finance business, but in 2010 it will be looking to expand on the exporting side.

“Our aim is to finance more of Africa’s exports and facilitate the export of soft commodities and metals. We have already done several export transactions,” Siby, head of the bank’s Africa desk, comments.

The rationale behind the bank’s strategy is that through providing factoring services and export financing, this business will feed the bank’s upstream market, providing opportunities for corporate finance and structured trade finance. The whole trade process of moving a commodity from Africa to Europe can be supported by FIMBank, Siby explains.

The bank is also hoping to expand away from its West Africa stronghold to East Africa over the course of 2010.

However, the team will continue to specifically focus on the smaller short-term deals, generally financing transactions for 60-90 days and occasionally 180 days in addition to the longer term structured commodity finance business and the financing of exports of investment goods into emerging markets from developed countries (forfaiting).

“You have to look at your remuneration on a specific deal. We shall avoid markets offering a low return due to the level of competition and focus essentially on transactions and countries with a potential of generating higher return,” Siby notes.

Product development
It is in Africa where FIMBank is involved in some innovative developments in terms of its trade finance products.

Given that the popularity of LCs and some traditional financing tools is waning in some markets, the bank has been looking at new ways of servicing trading companies.

“We are seeing that certain emerging countries which in the past would rely on LCs, are becoming more sophisticated. One has now to consider what other risks to take in emerging markets beyond bank risk,” explains Renald Theuma, head of product sales.

For instance, in the Ivory Coast, FIMBank is currently working on a deal involving the export of cocoa.

in this case there is a local bank providing facilities to cocoa farmers. The commodity is then delivered to a particular warehouse, where an inspection certificate is issued to ensure that the quality of the beans meets with the requirements demanded by the purchasing company or offtaker. At this stage, FIMBank refinances the bank in the Ivory Coast and takes over the collateral of the cocoa beans for a short period of time.

With this deal, the bank is taking on the risk of the local exporter as well as country risk, although it holds on to the commodity as collateral.

“This type of deal is really part of the future for FIMBank. We are also looking at doing similar structures in Eastern European countries with other commodities (such as metals) which are eventually sold to European companies,” Theuma notes.

This type of facility could also provide the bank with a continuous source of business, financing the twice-yearly harvest of cocoa business, rather than just a one-off deal financed through back-to-back letters of credit.