Banks have posted mixed results from their trade finance business in the first half of 2024, a review of public reports shows, reflecting an uneven recovery in global trade volumes.
Mid-year reporting by banks suggests that globally, the trade finance market is showing signs of recovery from a muted 2023, when performance was dragged down by a 1.2% drop in global goods trade, according to the World Trade Organization (WTO).
Merchandise trade started to recover at the end of 2023 and “gained momentum” during the first quarter of this year, according to the WTO’s most recent trade barometer, published in early September. The index predicts continued growth for the rest of the year despite a “highly uncertain” outlook because of geopolitical tensions, conflict and “shifting monetary policy”.
But the WTO says recent data shows “weaker than expected trade” in Europe, although most of the continent’s major lenders that disclosed trade finance income reported largely stable figures, while
Volumes at Chinese megabanks appear consistent despite the country’s stuttering economy, while banks in countries such as Brazil, South Africa and the UAE largely disclosed growth in trade finance volume or income.
The results provide only a partial snapshot of the global trade finance market as many lenders do not publicly disclose specific volumes or earnings from trade finance activities, and the review does not cover all banks or markets.
Europe
The world’s largest trade bank, HSBC, is optimistic that trade volumes are on an upward trajectory. “After a softer year in 2023, international trade volumes are forecast to grow more quickly this year and next,” then-CEO Noel Quinn wrote in an introduction to the bank’s interim results. “As the world’s leading trade finance bank and the third-largest bank for global foreign exchange revenue since 2021, we expect to capitalise on this.”
Wholesale “multijurisdictional client revenue” rose by 4%, from US$9.4bn in the first half of 2023 to US$9.7bn in the same period this year.
Revenue from the bank’s recently renamed Global Trade Solutions division within commercial banking fell by 3% over the period, to US$970mn, which the bank attributed to “lower average balances reflecting the higher rates environment and the softer trade cycle, notably in our main legal entity in Asia”. But trade revenue in its global banking and markets division jumped by 4% to US$347mn.
Standard Chartered reported operating income of US$626mn from trade and working capital in the first half of the year, a 4% fall on the US$678mn reported in the first half of last year. It is a sharper drop than the 1% year-on-year retraction it experienced in trade and working capital income during 2023.
The London-headquartered lender, which focuses on Asia and emerging markets, said the fall reflected “margin compression and lower volumes”.
The picture was somewhat rosier over the period for Deutsche Bank. It said in a presentation to analysts that fee and commission income from the lender’s corporate bank grew by 6% over the period, driven partly by trade finance and lending.
The bank added that it had “gained market share in our documentary trade business, and our structuring capabilities are expanding, which includes increasing contribution from larger transition financing deals”.
Its rival Commerzbank reported net commission income from “cash and trade” of €388.1mn for the first half of the year, slightly higher than the first six months of 2023.
In the Netherlands, ING reported a €1bn drop in net core lending growth in wholesale banking, which was partly attributable to “a decline” in trade and commodity finance. Profit in ING’s “daily banking and trade finance” line fell by 14.1% quarter-on-quarter, but the bank said that was mainly due to lower income from payments and cash management, rather than trade finance specifically.
Fee income was stronger, with the lender noting an “increase in commissions” from global capital markets and trade finance services.
While Madrid-headquartered Santander said trade and working capital business performance “remained flat”, the bank noted a “strong increase” in export finance.
What Italy’s UniCredit described as “resilient” trade finance, alongside correspondent banking, contributed €600mn to the lender’s corporate solutions income, a figure stable compared to the first six months of 2023.
Fees from trade and correspondent banking grew by 3% in the first half of the year, compared to the same period in 2023.
Most trade finance banks in the commodity trading hub of Switzerland did not report specific figures on trade, but Banque Cantonale Vaudoise (BCV) said in a results presentation: “In light of geopolitical tensions, BCV has scaled back its trade finance exposure, with average volumes down 9%.”
A spokesperson for the Lausanne-headquartered lender says that its trade finance exposure remains “comparable” to 2023 despite geopolitical tensions, although its average trade finance business volumes in 2023 were 28% lower than 2022.
United Arab Emirates
In the UAE, the Middle East’s main finance hub, Emirates NBD reported fee and commission income from trade finance of AED297mn (US$80.9mn) and said overall corporate lending was up 7% in the first half, “partly driven by new origination of trade”.
The bank also noted “improved cross-sell across foreign exchange, derivatives and trade finance”.
First Abu Dhabi Bank reported a jump in trade-related loans to AED46.3bn (US$12.6bn) at the end of June, compared to AED32bn it reported at the end of December 2023. Total trade contingencies – including letters of credit (LCs) and guarantees – remained largely stable compared to the final half of 2023, at AED164bn.
Mashreq, on the other hand, reported a slight drop in trade loans and advances to customers to AED20.8bn (US$5.6bn), compared to AED22bn for the last six months of 2023.
South Africa
In South Africa, Standard Bank disclosed a 4% lift in net fee and commission revenue and said transaction fee growth of 8% was partly supported by “higher client trade and transactional activity”.
Its rival Rand Merchant Bank, which reported full-year results for the 12 months ending June 31, said the contribution of its treasury and trade solutions division to profit before tax was R2.7bn (US$157.1mn), up by 6% compared to the previous year.
The lender said 8% revenue growth within the division was partly “underpinned by a 13% uplift in [non-interest revenue] driven by increased trade and structuring activities”.
“Average advances increased 12%, driven by demand for structured lending, traditional trade and general banking facilities from clients,” the bank reported.
Asia
In China, which is being nervously watched as it grapples with a slowing economy, the country’s megabanks provided few details on income from trade activity but instead gave snapshots of current volumes.
While the average balance of Bank of China’s trade bills edged slightly higher over the first half of the year to stand at Rmb525.1bn (US$74.9bn), the average interest rate was 1.25%, the lowest among all its loan segments and a decrease of 29 basis points compared to the same period last year.
ICBC, the world’s largest bank by assets, did not disclose revenue from its trade business, but reported having around Rmb210bn (US$29.9bn) in LCs issued as of June 30, three-quarters of those being usance LCs. The figure was slightly higher compared to that reported at the end of December.
The Agricultural Bank of China reported that the volume of its international trade financing, including financing with domestic LCs, was US$68.5bn in the first half of the year, a marked slump on the US$81.2bn the bank reported at the same time last year.
In Japan, only MUFG gave an insight into its trade book, noting in an annual report for the financial year ending in March that commercial LCs stood at ¥974bn (US$138.9bn), up from ¥871bn in March 2023. The bank’s report lamented that “global trade flows are still relatively stagnant” and noted trade conflicts between the US, China and Europe “continue to pose risks”, a sentiment echoed by many international lenders.
In Singapore, trade loan volumes showed signs of recovery at DBS, which reported a rise of S$3bn (US$2.3bn) in the first half of the year, with the average interest rate on trade assets also creeping up to 5.99% from 5.78% in the second half of 2023.
But trade income dipped by 7% to S$320mn during the same period, which the bank attributed to “reduced volumes”. Hong Kong trade loan volumes shrank by 8% year-on-year.
Overall, for DBS, trade assets recovered from a low seen at the end of 2023 to S$47bn, the same volume as the bank reported in the second quarter of 2023.
Elsewhere in Singapore, United Overseas Bank (UOB)’s half-year report shows trade-related fee income dipped by 6% during the period to S$146mn (US$113.9mn), slightly offsetting a 19% jump in overall loan-related fees. But volumes ticked upwards, with the bank reporting 9% growth in trade loan volume at the end of June this year, compared to a year earlier.
Completing the trio of large locally headquartered banks, OCBC reported few trade-related details, but said that non-interest income from trade and remittances was S$131mn (US$102.2mn) during the first half of the year, 3% lower than in the first half of 2023.
Americas
In the US, Citi was the only lender to disclose trade-related income, noting in a half-year report that “Treasury and Trade Solutions revenues of US$3.4bn were largely unchanged, as a 14% increase in non-interest revenues was offset by a 3% decrease in net interest income”.
The bank said the boost in non-interest revenue was due to a 6% year-on-year lift in cross-border transaction value, which was also up 2% quarter-on-quarter at US$93bn.
Volumes appear healthy in Brazil, where the country’s largest lender Itaú Unibanco reported loans for import and export financing jumped to R$81bn (US$14.8bn) in Q2, 10.5% higher compared to the previous quarter. Guarantees for international trade also rose.
At Bradesco, loans and advances for “financing and export” soared from R$28.9bn (US$5.3bn) in December to R$38.3bn at the end of June, while import loans were R$9.8bn, up from R$7.2bn. LCs issued for imports more than doubled, from R$439bn to R$1tn.
Banco do Brasil, which describes itself as the country’s largest provider of trade finance, didn’t report the size of its portfolio but said income from export finance loans in H1 jumped 11.3% to R$1.7bn (US$311mn), while income from international trade guarantees climbed to R$1.3bn, almost five times that of the six months to December 2023.
A spokesperson says the boost in income from guarantees is a result of a “more focused approach” to the product.
