HSBC has built a multi-hub capability to encourage investors such as pension funds, asset managers and insurers to take part in financing of cross-border trade.

The bank will now offer trade risk distribution options, whereby it will invite other investors to participate in a transaction. Trade risk distribution allows a bank to meet the trade credit demand of a client when it exceeds an individual financial institution’s risk limits. Traditionally this is only done between banks.

“It’s a relatively new investor base for trade finance which is picking up gradually. For certain non-bank investors it means access to a new asset class that offers better risk-adjusted returns than many other securities,” global head of trade risk distribution Surath Sengupta tells GTR.

“For HSBC, both sides are customers. On the one hand we have the corporate customer who wants us to manage the entire funding for them. On the other, we have banks and other alternate investors who are keen on investing in these trade finance assets. As a bank with customers on both sides and globally, it’s a matter of getting these demands met.”

In 2015, HSBC’s global trade receivable finance (GTRF) generated over US$550bn of documentary trade finance for its customers. As part of the new offering the bank has trade risk distribution specialists integrated into its GTRF teams in London, Singapore and New York.

“There is good interest from different types of investors. We have already done transactions with different investors,” adds Sengupta. “I can confirm this without giving out names.”

The World Trade Organisation (WTO) estimates that as much as 80% of global trade is supported by some form of trade finance.

According to the Asian Development Bank (ADB) the global trade finance gap stood at US$1.6tn in 2016, with 45% of banks ending correspondent banking relationships due to the cost or complexity of compliance with regulations designed to tackle financial crime.

Trade assets are typically short-term assets that cover transactions between exporters and importers. Analysis by the International Chamber of Commerce (ICC) shows their average default rate to be 0.02%.