Vivek Ramachandran has been HSBC’s head of global trade and receivables finance for the last two years. He initially joined the bank in 2015 as head of product for trade and receivables finance, departing in 2019 to set up Serai, an online B2B platform for SME trade that was equity-funded by HSBC, before returning to the lender in May 2022. 

In this interview, the latest in GTR’s Trade Leaders series, Ramachandran outlines the macroeconomic headwinds facing the trade finance sector, while singling out some of the products and markets that are showing significant signs of promise. He also outlines the vast untapped potential that digitalisation holds for trade, and the transformation being brought about by sustainability-linked finance. 

 

GTR: To set the scene, can you tell us about HSBC’s position in the global trade finance market? 

Ramachandran: HSBC is trade finance. We were founded over 150 years ago to facilitate trade and we are the world’s largest trade bank. Last year, we facilitated over US$850bn of trade, and we have consistently been chosen by our customers as the world’s leading trade bank. Across the business we have around 500 professionals in trade, all the way from operations to sales. 

What makes HSBC unique is not just the geographic breadth that we cover, but the depth of the client franchise within those markets. We span the world’s largest corporates down to the middle market, and in some markets like Hong Kong and the UK, down to business banking clients.  Also, unlike many of our competitors, we run trade as a distinct product business, so it’s not clubbed into our transaction bank.  

 

GTR: In the bank’s most recent full-year results, trade finance activity was fairly flat, and generally on the macroeconomic side we’re seeing slow trade growth and a relatively gloomy outlook. Could you give us a snapshot of HSBC’s trade activity at the moment, and where challenges and opportunities lie? 

Ramachandran: The macro environment is a challenging one for many clients. Economic activity is subdued, consumer demand has not quite bounced back, and particularly in 2023 a lot of inventory had been built up over the previous years which was then being used up, so order flow was low. Against that backdrop, there was also a big spike in dollar funding costs. However, 2023 was a robust year, and the fee income, especially from guarantees, was very strong. 

Looking at 2024, the expectation is that market conditions will continue to be subdued, and shipping challenges have also impacted quite a few of our clients. Hopefully those conditions have bottomed out now and markets will improve, but we’re not planning for a big uptick just yet. 

That said, there’s lots of opportunity. In a demanding environment, or when shipping conditions get worse, clients’ working capital cycles get extended and they need banks to help them. That could be as simple as financing, but we also help with risk mitigation. And there are a lot of new economic corridors being created, such as Mexico and Vietnam into the US, or China into Mexico, and India is very buoyant. There are lots of pockets where we see a lot of growth coming up. 

On the product side, we’ve got the full product suite, but the big push we are seeing is in structured working capital solutions. Clients are engaging in new kinds of contracts, looking to embed financing into their platform strategies, and financing is no longer just about optimising working capital. It’s also a lever to drive sales and commercial activities. 

 

GTR: Digitisation and technology within trade is obviously a major focus for HSBC. Where do you see trade digitisation and trade technology moving now? 

Ramachandran: This is an area where we see huge opportunities as a bank, and there is huge demand for digital trade products. We’ve invested to replatform our whole trade business. This will be called HSBC Trade Solutions, or HTS, and it could be the largest programme any trade bank has undergone. 

As a result of that, we cannot just offer a lot more digital products, but we can automate journeys for documentary products which have historically been quite paper-intensive or people-intensive. 

We also launched a product called HSBC Trade Pay, which is a fully digital trade loan. All notions of what a trade loan looks like have to be dispelled because this is at the other end of the spectrum, and we’ve already got almost a billion dollars through this product in a short period of time. 

We can issue a guarantee in under five minutes, and this year we are looking to move from a handful of examples to hundreds of examples. Whether it’s loans, whether it’s letters of credit, whether it’s guarantees, we are driving automation. That creates a better client journey, it takes operational risk out of the system, and most importantly, you have all the data sitting in one place and can use that to produce client insights. 

 

GTR: Staying with technology, we’ve seen a growing focus on collaboration and partnerships between banks and fintechs, bringing together the scale and customer relationships that a bank can offer, with the innovation and know-how of a technology company. Is that still the direction of travel? 

Ramachandran: I would say the whole discussion about fintechs eating the banks’ lunch feels a little dated. We realise that to make the market more efficient, we have to work with other players. If you want to digitise trade, you need not just banks but other players in the ecosystem – shippers, ports, customs, freight forwards – all collaborating. 

My observation is that now, the large market leaders are all at the table because we all realise digitisation will lead to more trade and less friction, which will be good for the economies and clients we serve. It’s true that will eat into some of the revenue streams that we and other banks have today, but our stance is very clear: we are happy to cannibalise revenue that will go away anyway when the world becomes more efficient. 

 

GTR: Sustainability is, of course, top of the agenda across the global banking sector. What areas within trade are you seeing success when it comes to introducing sustainability criteria, and are you optimistic that financial institutions will be able to make the difference that is needed? 

Ramachandran: We are seeing increasing demand for sustainability-led solutions. Last year was a very strong year for us, facilitating over US$9bn of sustainable trade finance, and we see huge demand for sustainability-linked solutions – not just sustainable supply chain finance, but also bid guarantees going earlier into the production cycle. That could be pre-shipment financing or capex financing; we see a lot of push for that. 

We’ve just published the group’s transition plan, and decarbonising supply chains and trade is one of our areas of focus, and we’re putting a lot of effort into that. It is still early days, but I think when we look back after four or five years on sustainable trade finance we will realise how far we have come. I think there will be an exponential nature to how quickly this is going to move.