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Marie-Laure Gastellu has been global head of trade at Société Générale, one of France’s largest lenders, since mid-2020, and has been with the bank since 1989.

In this first interview as part of GTR’s new series of talks with trade finance leaders around the world, Gastellu discusses the future of traditional trade instruments, why the industry needs securitisation solutions to support growth in guarantees and how the bank approaches low-margin SME lending.

The interview has been edited for length and clarity.

 

GTR: Trade finance today encompasses several product areas, from documentary credit, such as letters of credit (LCs), to supply chain and receivables finance, and revolving credit facilities. Do you see that product mix remaining unchanged over the next decade, or do you see potential evolution?

Gastellu: The LC business is gradually decreasing year after year as part of the traditional instruments which are enabling global trade. This trend has not been reversed, despite the increased geopolitical risk and tension. If LCs remain a decreasing trend despite such situations, it means that this is probably a trend that is expected to last.

I do believe though that there will still be a market for LCs because you will still have some government bodies, for instance, which will remain very much attached to the security provided by the LCs. LCs are cumbersome; they’re paper based and heavy to process, but from a security and risk point of view, there’s no better instrument that protects you from the country risk and the counterparty risk and under a framework which is crystal clear and totally agreed upon by all parties This advantage remains unrivalled, even compared to insurance cover.

The only thing that could change that [trend] is digitalisation. If we could digitalise the LC business – meaning get rid of the paper – it would significantly improve the processing time at each step of the LC and, as a result, lead to a cheaper cost of business for the banks and also for corporates.

 

GTR: If LCs are on the decline, what is replacing them?

Gastellu: We see more and more of open account, including receivables finance, supply chain finance, and import and export loans. We saw that progressing quite a lot until the interest rate skyrocketed, and then it became an issue for many borrowers because of the increased cost. SMEs in France also tend to prefer insurance cover rather than LCs, because it’s simpler and less expensive.

The other products that are still widely used are guarantees and standby LCs. The business is very healthy and has grown significantly over the past few years, especially during and after Covid-19. It has also been driven a lot by the energy transition, where you see huge projects in renewable energy, smart cities, mobility, etc. In Europe, we have very large exporters in these sectors and they are winning very large contracts, requiring bank guarantees to support their commercial deals.

 

GTR: Overall, the trade finance picture in 2023 for many banks was very flat – with revenues generally not growing, even though interest rates were high. Was that also the case for Société Générale last year? If so, what do you think is causing that?

Gastellu: We don’t disclose figures regarding the trade finance business, but what I can tell you is that our business for many years has been driven by guarantees.  Honestly speaking, the trend has been very good – so last year was a rather good year for us. The only thing that could cap the capacity to grow further is the risk-weighted assets aspect. If we don’t find smart distribution solutions, we could be capped in our capacity to further grow the business. That’s why it’s very interesting to see some securitisation solutions which include off balance sheet instruments in the market, that some banks are putting in place, which enable them to free up capital. This enables you to continue to grow as a business, because the guarantee business is expected to be very healthy in the coming years. I believe that we will see in the coming months and years a new asset class proposed to investors, which will include some off-balance sheet items, like guarantees.

 

GTR: On trade finance digitalisation, when do you think we are going to reach a tipping point where the majority of trade finance transactions are almost or fully digital?

Gastellu: I don’t think it will be next year, or the year after. But I do believe that if we keep the same level and path of acceleration, the industry will probably have achieved a significant step by 2030. Especially because the company members of the [Digital Container Shipping Association] have committed to reach 100% use of electronic bills of lading (BLs) by 2030. BLs are not the only trade finance documents, but they are a pillar document in an LC, evidencing the ownership of the goods. Once BLs are digitalised, it will drive further digitisation of other documents. I would say that in the next five years, we should see significant progress, but I don’t expect a ‘Big Bang’, I think it will be progressive and probably corridor by corridor, between countries having adopted the MLETR (Model Law on Electronic Transferable Records) in their domestic law.

 

GTR: It is often said that it is difficult for banks to serve SMEs with trade finance because the cost of regulatory requirements, such as for anti-money laundering, don’t justify the relatively low margins – is this also the case with Société Générale? How do you approach that segment of the market?

Gastellu: At Société Générale, it has always been in our DNA to accompany the international development of our clients and we promote a client-centric approach. We consider the overall relationship we have with a client. Sometimes you can make more money on one thing, and less on another. But overall, what matters is the capacity to develop and maintain over time a trustworthy relationship, which is well balanced both from a bank point of view and a client point of view.

If you want to develop business with a corporate client, whether small or large, trade finance is a key component of the relationship. It’s really difficult to be in the core banking pool of your clients if you don’t accompany that capacity to gain commercial contracts and to secure their trade payments.

 

GTR: We have seen some banks provide heavily polluting companies with sustainability-linked loans. In your portfolio, how do you deal with companies with large carbon footprints who want your help to set up sustainability-linked financing?

Gastellu: In some cases, we are approached by clients from the old economy with a large carbon footprint, but who are engaged in the transition and putting in place a funding framework that aligns closely with their sustainability goals. They ask us to come up with a proposal on ESG trade finance. In some cases, we can’t do it because it does not match the bank’s policy and ESG commitment and framework. But when it matches, we do so because we strongly believe that as a bank, our role is to stand by our clients engaged in the transition, offering them our tailor-made green or sustainability-linked trade finance solutions when it makes sense and when it meets our criteria.