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Trade finance revenues hit seven-year low

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Global trade finance revenues reached their lowest level in seven years, with a 5% decline year-on-year for the first half of 2017.

Total trade finance revenues for the ten largest global transaction banks (Bank of America Merrill Lynch, Barclays, BNP Paribas, CITI, Deutsche Bank, HSBC, JP Morgan, Société Générale, Standard Chartered and Wells Fargo) fell to US$2.8bn compared to US$2.9bn in the same period last year, according to the latest report by analytics company Coalition, which monitors bank activity.

Trade finance revenues comprise of traditional trade finance such as LCs as well as structured trade finance products. Structured trade finance revenue declined significantly, driven by reduced commodity trade finance activity across all regions, Coalition’s research director Eric Li tells GTR.

Year-on-year structured trade finance revenues were down to US$0.9bn in the first half of 2017 compared to US$1bn for the first half of 2016, and US$1.2bn in the first half of 2011.

Meanwhile, traditional trade finance products such as LCs performed well on the back of improved volumes, while supply chain finance continued to grow in most regions, led by the US.

The outlook for the sector is not expected to see any improvement for the remainder of the year says Li: “We don’t expect second half of 2017 to be materially different from the first half, therefore we are expecting a slight decline in revenue for the full year.”

Coalition’s report also looks at cash management revenues, which in contrast to trade finance reached their highest level in the last seven years. Total cash management revenue for the ten banks was up 7% to US$11bn. The growth reflected higher volumes and improved net interest income. Payables and receivables activities improved slightly on the back of strong volume growth; however, margins remain challenged due to the regulatory environment, and clients increasing their pricing power.

Earlier in the year, the annual Rethinking Trade Finance report from the International Chamber of Commerce (ICC) noted that 80% of banks surveyed expected little or no growth in traditional trade finance tools as the move towards open account trading continues to grow.

The ICC survey also highlighted the continuing trend of unmet demand for trade finance. 61% of banks perceived that there is more demand for trade finance than supply. This ties in with concerns over compliance and regulation, and the ongoing trend of banks severing correspondent banking relationships and the stemming the flow of capital to emerging markets.

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