The IFC has hosted its third annual GTFP (Global Trade Finance Programme) bank partners meeting. The focus of the event – held in Istanbul – was on helping partners better use existing IFC programmes and updating delegates on how the trade schemes are being expanded. Shannon Manders reports.
The IFC used the conference as an opportunity to provide an update on its two principal trade-related programmes – the GTFP (launched in October 2005 with a US$500mn ceiling) and the GTLP (Global Trade Liquidity Programme – established in 2008 and endorsed by the G-20).
In her opening speech at the event, Bonnie Galat, global head, GTFP marketing and risk distribution at IFC, identified the differences between the two trade initiatives, and highlighted how each programme is set to change as a result of shifts in demand.
She explained that the GTFP – an IFC commitment alone, providing per-transaction coverage – has always been an unfunded product, but will soon incorporate a cash product.
“That will only be in instances where we cannot find a confirming bank who wants to provide the cash. So this would really be in the lesser developed countries, where even with our guarantee in place, we cannot get the cash component,” added Scott Stevenson, IFC’s senior manager, GTFP.
Furthermore, Galat noted that the GTLP, which takes a portfolio approach, is supported by both IFC and partner-committed funds, and was funded to begin with, is now moving to an unfunded phase.
Commenting on the success of the GTLP, through which US$1bn has been dispersed to support US$3bn in trade to date, Georgina Baker, IFC’s director of short-term finance noted that this triumph has only been possible as a result of good partnerships with commercial banks, which drive liquidity into the market. “But now as financial institutions are showing more appetite for trade finance, we are moving back to guarantees,” she added.
IFC representatives at the conference all agreed that the GTFP has been on a steady upward curve since its inception.
“It is interesting to note that in the past 12 months, approximately 94% of what we’ve been requested in terms of guarantees has been 100% guarantees, whereas previously we were running between 80 and 85% – so that’s a change,” Galat noted.
She added that the programme’s ceiling was raised to US$3bn as soon as the crisis began unfolding.
“So, we have a much bigger programme – we’re running at about US$1.5bn outstandings as of today – and we still have capacity.
“The GTFP did US$2.4bn in the last fiscal year, which ended June 30, 2009, and already in the nine months of this year, we’ve done that US$2.4bn. So we’re on track to be about US$3.2bn in this fiscal year.”
Galat provided a snapshot of the programme on a cumulative basis, reporting that the IFC has issued over US$7bn worth of guarantees as part of the GTFP thus far. The average tenor of deals has come down a little bit over time; from six months for the first few years to a current average of five months. The programme is still dominated by smaller transactions, and a total of 80% of deals are under US$1mn.
Significantly, Galat added, the GTFP has a zero claims history, reflecting the generally good performance of trade assets.
“One of the reasons we haven’t had claims, is because we’ve been focused on the fact that we look at true trade transactions,” explained Stevenson. “So sometimes, we might not appear to be as nimble as we can be, but in reality we are delving deeper into the transaction, making sure that nothing is on our exclusion list, and that the tenors match the type of goods.”
In her presentation, Georgina Baker divulged that the IFC is investigating new products – based on the success of the GTFP.
She explained that the IFC has been given a broader mandate to branch out into other areas of short-term finance.
“Up until now we’ve been focused on trade and short-term finance through banks. And now the team has been asked to look at supplying short-term finance to all of IFC’s customers. This change in mandate has been literally over the last few months, and so we are now starting to develop programmes that will target IFC’s clients – whether those are manufacturing, agri-business, health or education.”
She explained that the IFC is in the process of creating a supply chain finance programme, in which it will finance the emerging markets suppliers of large corporates.
It is also developing a warehouse receipts programme to guarantee the exposure of local banks to farmers that can offer warehouse receipts as collateral. “We’ll be working in tandem with advisory services to develop warehouse receipts legislation in those markets that lack the necessary regulations,” Baker said.
Additionally, the IFC is creating programmes to help major manufacturers – such as Fiat – who want to get better access to finance for their emerging market suppliers.
“These are all initiatives that we’ve cooked up in conjunction with some of our clients,” noted Baker, who called for GTFP partner banks to come forward with their own ideas to help the banks support their own needs, as well as the needs of their clients in their local markets.
Commenting on the programme’s technical proficiency, Stevenson added that over the last year, the IFC has developed inhouse – along with a technology service provider – a much improved operating platform. “From an operational standpoint we’re almost at a 100% straight-through processing – which is always a goal in terms of operating efficiency,” reported Stevenson.
It was revealed at the conference that Istanbul is set to become the new location for the IFC’s operating hub.
The move from Washington DC to the Turkish city will afford the IFC the geographic diversification it needs to provide real-time support and a higher degree of efficiency in terms of turnaround time. “The logic of moving to Istanbul is that it would provide better real-time coverage in terms of Eastern Europe, Sub-Saharan Africa, and improved coverage for the rest of Asia. Latin America will continue to be serviced in the same time zone out of Washington DC,” Stevenson said.
A total of 160 bankers from 96 institutions attended the IFC’s conference, including 46 issuing banks, 55 confirming banks, and 70 first-time participants. Catering to the broad range of bankers present, the conference agenda incorporated a number of regional panel discussions, a review on legal lessons learned in 2009, an insurance perspective, as well as various technical analyses, with topics including the revised URDG 758, KYC tools, and GTFP advisory services. The conference, which ran from April 27 – 29,
ended with an awards ceremony, with Citi winning best GTFP global confirming bank in 2010. GTR