Mena trade finance experts discuss the rebalancing of liquidity, products and pricing in the midst of regional uncertainty.
- Yusuf Ali Khan, managing director, head of trade for Middle East, North Africa, Turkey & Pakistan, Citi
- Kamel Alzarka, chairman, Falcon Group
- Maninder Bhandari, director, Derby Group (chair)
- Anith Daniel, head of sales, transaction banking services, Emirates NBD
- Haytham El Maayergi, global head of transaction banking, Abu Dhabi Islamic Bank
- Krishnakumar Duraiswamy, head of trade finance, ADCB
- Ziad Ghosn, head of financial institutions and trade finance, BankMed
- Thomas Holmes, producer/broker, Miller Insurance Services LLP
- Sonam Kapadia, head of corporate trade sales & advisory Mena, NBAD
- Kersi Patel, regional head of trade finance, Middle East and North Africa, MUFG
- Jeroen Reyes, head of trade and working capital Middle East and India, Barclays
- Rajesh Sethi, head of group Strategy, Noor Investment Group
- Farrukh Zain, formerly global head of trade sales, First Gulf Bank
Bhandari: When you talk to corporates, banks, or the man on the street, they say there is a global slowdown in trade flows. The question, which is a simple one, is: ‘Is that true? If it is, is it regional or sectoral? Are we feeling it in the region?’
Daniel: Across the sectors that we work in, we have seen a general drop in turnovers. There is definitely a slowdown in the market. I do not think that is a function of people’s perception of the economy; especially for the UAE, it is more a function of the fact that people are generally wary about who they want to deal with, so they have gone slow in terms of offering credit to most customers and they have pulled back a little bit.
Bhandari: You have referred partly to sectors and flows but more to risk. Yusuf, is it sectoral or regional? Is it short-term or long-term? What is the general feel on the global level from the perspective of Citi?
Khan: From a demand perspective, we are still seeing a lot of robust demand coming in, certainly for medium and long-term financing. It is all driven by infrastructure growth; whenever you look at Sub-Saharan Africa, markets like Nigeria, Ghana, Kenya and Zambia, there is a lot of pent-up infrastructure financing demand, and Citi has successfully deployed ECA and multilateral-backed financing to address that demand. If you look at the broader Middle East, in Egypt and Iraq for example, there is a lot of pent-up demand for infrastructure development across power, roads and transport. In Pakistan, we are working with utilities to arrange term financing supported by multilaterals. In the early part of last year, we did the engine financing for Pakistan International Airlines: we continue to see that demand. I don’t think that’s going away.
For the short-term instruments, we have seen a steady decline in volumes in LC confirmations and issuances as package sizes have become smaller. Business is predominantly driven by oil flows, and because the oil price has dropped, those ticket sizes have dropped. Moreover, as liquidity has tightened, clients have become more amendable in discussing other structures, like pre-payment type financing or pre-export type financing, in order to address their financing needs.
Ghosn: On the risk side, I would divide the Mena countries into GCC and non-GCC countries. On the GCC side, I do not believe for the time being that there is any alarming increase in the underlying FI risk of trade finance transactions. The same applies to GCC corporates, on the applicant side, unless of course you move further down in the tiering spectrum of the corporates, then maybe it’s not the case with smaller companies. For the non-GCC countries such as North Africa or the Levant area, the situation also differs from one country to the other. In Lebanon, for example, the banks’ risks have not really gone up. As it is known, Lebanese banks have high liquidity levels, strong capitalisation and a conservative approach to business development. The banks have been through each and every imaginable stress test; the least, for them, is the drop in oil prices. It is worth noting that the drop in oil prices had a positive impact on the energy bills of net oil importing countries such as Lebanon, Egypt, Jordan, etc.
In some countries where there could be currently a foreign currency squeeze – in Egypt for example – the regulators, the bankers, and the economic players as a whole have learned from past downside experiences. You can now see the regulators coping with the current crisis through their intervention to prioritise, for example, the importation of strategic goods over non-strategic or consumer goods. We have seen other examples such as regulators giving subsidised FX rates when it comes to strategic goods.
On the other side, it is evident that the banks and the bankers themselves have learned well from past crises and from similar past periods of liquidity or foreign currency squeezes. They are now prioritising the types of trade finance transactions they want to be dealing with as well as the type of corporate activity that they want to finance. This is a proactive approach that complements
the regulators’ efforts and initiatives.
Bhandari: We are hearing that there are structural issues and risk issues that can be managed together. We are hearing that there are some priorities that can be chosen and subsidised, in terms of imports. The clients are saying otherwise: trade flows have dropped, risks have increased, and banks are holding back. Why is there a disconnect between what the market is saying and what we are suggesting?
Alzarka: People are quite negative on the overall circumstances of the geopolitical economy, mainly because of the price of oil, and I will comment on what Ziad said. In Lebanon, for example, there has been a huge drop in the energy bill for developing countries. If you look on the macroeconomic level, there is a huge transfer of wealth. There is going to be a redistribution in a different way in other parts of the world. I am quite positive regarding the years to come. There is a lot of opportunity in the market, if you look at it. The crowd likes to follow the mass, and then everything is doom and gloom. I do not see it this way; there are lots of opportunities, and I hope that 2016 will turn out to be a good surprise.
Yes, there are challenges; I am not going to say there are not. Governments having fewer dollars and spending less is trickling down less in the economy, but it is not as bad as we think it is in this part of the world. In other parts of the world, the drop in energy bills will benefit a lot of economies, and Lebanon is an example of that. I am not as doom and gloom as everybody else.
Bhandari: At this point, I am going to move to the insurers, because they are the ones who see both sides of the equation. What is going on?
Holmes: There is some real positivity out there. There are some that will benefit and there are some that are going to suffer, and if you look at the insurance market at the moment, we are quite commodity-focused. There is a lot of commodity focus around what we do; it is not all we do, but clearly, mining companies will face challenges. Metals, particularly, will be quite challenging. Bear in mind that some of the small to medium-sized mines no longer really work; the price does not work for them, so ultimately, you would expect to see them below water. That is going to be very challenging.
Bhandari: What about the demand for insurance?
Holmes: Demand for insurance is up. There is no question about that.
Bhandari: Does that indicate which way this is heading?
Holmes: Not really, no, because people do not all buy insurance for the same reasons. Of course, it is there specifically to protect you against a loss, but it does not mean you are buying the insurance because you think there will be a loss. You could be buying insurance as part of your general mitigation strategy, or because you are able to get capital relief. There are a number of different reasons why people buy insurance. Because we are commodity-focused, and because oil and other commodities have, broadly speaking, dropped, the limits required have dropped with them. However – and this will be an acid test – the insurance markets themselves have grown. There are probably 43 to 45 global markets that all write credit and political risk products.
Bhandari: The test of the water is always the extent of claims that happen.
Holmes: Some insurers are not pleased, but there has been a benign environment in insurance for probably four to five years. This is an opportunity. When the claims do come – and they will come, and they are coming; there are some ‘wobbles’ at the moment, where you are made aware of a situation and you hope it will resolve itself well – these are the moments when the insureds, the banks and the traders, prove that the structures they have created can survive difficult times and drops in commodity prices. This is where the insureds prove to the insurers that they are right. It is going to be a very difficult 2016, but we are not negative; we are just realistic.
Bhandari: There appear to be smaller and larger issues, but we are hearing that there is an upside down the road, and from an insurance perspective, people are insuring themselves not for reasons of implicit losses, but for protection from the unknown. On the converse side, where are the opportunities?
Sethi: I believe that the biggest opportunity is for bankers to develop an intense understanding of flows around the commodities you want to play in. Focus on really understanding transactions, cashflows and become specialists in particular areas relevant to each commodity to reduce the risk. This is connected with a survey we did about a year ago. In the survey, we contacted roughly 150 entities in the UAE, including multinationals. One of the key things that clients, ie potential borrowers, told us, is that banks do not really understand their commodity: ‘I am typically dealing with a banker who does name-based lending across rice, sugar, and 10 other commodities at the same time. If someone does not really understand my transactions, my counterparties and my cashflows, how am I going to be properly serviced?’
There is a lot of change going on around banks. Politics are changing, as are demand and structural changes in regulations, etc. The one aspect that bankers can control is building a deeper understanding of the client’s transaction and cashflows. That transaction level expertise drives other efficiencies, for example more relevant insurance covers.
Bhandari: Rajesh is talking about, if I am correct, looking at the transaction along with the client, not just pure historical financial strength numbers; the transaction is the essence of the trade flow. I am sure we do that, to some extent, but Haytham, as an Islamic bank, are you better suited or equally suited to what the conventional banks do?
El Maayergi: Opportunities for Islamic banks, if you read the market, are bigger than for conventional ones, because Islamic banking as a portion is smaller than the conventional market. That means that it is a smaller denominator to grow from. A lot of customers turn to us, even those who do not want Islamic banking, for the interesting structures that we can give them in terms of the balance sheet treatment and the ways the transactions flow. The more they get familiar with it, the more they are interested in it. A lot of businesses in our markets are growing: the industrial business in Egypt is becoming an interesting area, as are quite a few segments here in the UAE. It is up to us to deliver on par with multinational competitors, but in other areas, we have to make it easier for customers. It is not a disadvantage for us, for our customers, and coming from other multinational banks, we used to sell Islamic structures to conventional customers for the added benefits that Islamic structures offer. I do not see a disadvantage to customers; there are opportunities and a lot of room for growth in Islamic banking.
Bhandari: Other than the transaction, process or commodity, where are the specific opportunities? Is it a region? Is it a product? Is it a commodity? Which direction is this taking?
Patel: If we look at the region as a whole, the largest trade flow that we have is the export of oil and gas towards Asia, and the biggest challenge that our oil exporters are now facing is how to keep or increase their market share. Typically, national oil companies across the region have been well-set in the way they have been mitigating the risk of their receivables, and not all of them may be open to change very quickly. However, we have now seen that some of them are increasingly exploring solutions that can help them become a preferred supplier for their buyers, particularly in India and China, which together are on their way to become the largest consumers of oil and gas in the near future. GCC national oil companies looking for innovative risk mitigation, financing and cost-saving solutions is opening up major opportunities for banks with appropriate capabilities and presence on the ground in the region.
On the opposite side, across most markets in the region, key items for sustenance and development need to be imported from around the world. We have seen the regional governments, with energy exports-driven budgets, take various steps to tighten the overview of their expenditure and the effects of this are trickling down to all sectors of the economies, resulting in customers deferring their purchases, downsizing or cancelling them altogether. The initial signs of this slowdown in momentum are now clearly visible, though what’s not yet very clear is whether the correction would be as deep as what we saw during the last financial crisis or will we see a quick bounce once energy prices show some improvement and stability. While traditionally for imports, DCs/SBLCs have dominated the larger value transactions on the back of the sellers’ desire to cover the risk of receivables from the region, for some of the larger value flows we are now seeing early signs of adoption of electronic solutions which, while providing the desired security to sellers are also helping the buyers reduce the cost of their imports. And, considering the limited number of importers dominating the higher end of the market by value of imports, once established, I expect such solutions to spread rather rapidly over the next few years.
Bhandari: Farrukh, having worked on both sides you have a perspective on international as well as local banks. Is it a region, product, or commodity that the future holds?
Zain: It has to be a combination of those. You cannot just say that it is going to be the regional level. If you look at it from the product perspective, building on Kersi’s point, it is predominantly the SME sector. If you look at the banking spectrum in terms of products, there is not a single bank that can say, ‘I am a true SME bank’. We understand that the requirements of SMEs are more in line with corporate requirements, but the way banks tackle SMEs is more on the retail side.
From the opportunities perspective, of course, there is going to be a massive regional flow that is going to have a huge impact on the 2016, 2017 and 2018 flows of business. Africa will be one region or sector that most of the banks should be concentrating on. As Yusuf said earlier, we are looking at the slowdown not in terms of the flow, but in terms of the volumes, because the prices have gone down. We need to come up with a combination of products, not specifically for this region, but also for cross-regional opportunities.
Bhandari: Are the SMEs and the financial institutions ready for what Farrukh suggested in Africa?
Kapadia: The east-west corridor is where the horizontal trade lines are drawn, and the UAE is in the middle of that horizontal trade. That is essentially exports from Asia going into Africa, and, to a smaller extent, African exports going into Asia and the rest of the world. There are different parts of Africa. North Africa is relatively better understood. In Morocco, Algeria and Egypt, people get it. Business is ongoing. There is also a great amount of identification of these geographies both with the GCC and Mena, the Arab world, as well as linkages into Europe, so that part is pretty well catered to.
The southern part of Africa, South Africa and the countries that it influences, is another part of the business that is well-understood. The way it does business is quite distinct from how the northern part of Africa is doing business, but it is relatively well-banked. There is a very developed banking segment. I am sure that there are ways they can still further improve, but they are on the right path.
Bhandari: Let’s talk about the concentration risk that exists if you are in a country or region, and you remain. On the flip side, if you extend your presence, then, as Sonam was saying, there are risks associated. What is the right path?
Reyes: We take the whole strategy of the bank. Now, we call it ‘north-south’; everything outside of the north-south, we try to fit into that. That is what we are doing, and that is the only way we can make a difference for our clients.
Why try to help them somewhere where we do not have the knowledge or the local presence? Africa is definitely a place where we can do it. If you talk to some of the corporate clients, such as multinationals, they are really struggling to find a bank that can help them.
Bhandari: Is Dubai the place of expertise for Iran, Iraq, and the regions around?
Duraiswamy: I will leave Iran for the time being. Looking at the other regions, from a local bank perspective, what we see is predominantly GCC-based. Yes, there is a lot of cross-border that we do, but that is quite a limited partnership with some of those geographies. However, in terms of what we actually see, it has certainly calmed down in terms of flows, even within the region, and there are certain other areas that are probably growing for us as a bank. Looking at market share, a lot of international banks are experts in certain segments, and based on what happened in Q3/Q4 of last year, certain banks on the commercial lending side, the SME side and the mid-corporate side have shut certain industries down, but there is good business to be done from a structure perspective. That is where we see it going. If I look at my trade book, it is certainly not the same today as it was in 2015.
Bhandari: Is that the composition or the value?
Duraiswamy: Value has gone down overall, but volume has actually grown for a number of the new customers that we have been working with in the last six months, in different sectors.
Bhandari: Talking about Iraq, Iran, and further north, into the CIS states, the region is much talked about for its untapped potential, but trade values do not seem to be opening up, or is it opening up?
Alzarka: Being a much smaller organisation, we are much more cautious on where to go, and we are trying to stick to the middle-of-the-road businesses and countries. We have seen competitors try to venture into those things and blow up entirely. When you are a very large organisation and you have a blow-up somewhere like this, you can get away with it. For a small organisation like
us, it is not something we can afford. We try to stay away from those things.
From the little I can tell you, I have been hearing a lot about Iran lately. Funnily enough, just before coming down here, we were talking about Iran, and there are a lot of hopes placed on Iran, but I am sceptical. The geopolitical instabilities of the region make it a very uncertain thing for me. Yes, it is promising, and there are big opportunities, but the wind can change fairly quickly. If you look at what is going on in Yemen, Saudi, Turkey, Syria, and the elections in the US, Iran is not yet a sure thing for me. We are looking at it, but we are not going to jump in with both feet yet. The other areas you are talking about are, for us, too hairy for the time being. We would rather leave that for other people who are a bit more daring than us.
Bhandari: What is the insurance perspective on some of these places?
Holmes: There are very few countries in the world that it is difficult to secure insurance for. North Korea is still considered challenging. With Iraq, there are numerous covers in the marketplace. We ourselves have covered confirmation risk on issuing banks in Iraq for three or four years; touch wood, so far, we have had no problems whatsoever. There have been some very short delays, and there are a number of fiscal asset risks that have been covered in Iraq as well: onshore rigs and that type of thing. Iran is now opening up, but cautiously.
There are not many insurance markets that, while the OFAC sanctions are still in place, can provide cover, but equally, there are not many institutions that want to find cover with OFAC still in place, to a certain degree. However, we are aware of the availability or capacity of insurance on Iran, on a case-by-case basis where the broker and insurer will have to check very carefully with their respective compliance committees regarding that particular transaction. The answer is that, cautiously, Iran is coverable, but there are not many people that can do it. OFAC sanctions prevent many of them.
Bhandari: Let me throw a question to all, and hope somebody can help me here. I hear that the Italian, Turkish and Chinese banks can manage these exposures. Is that true?
Alzarka: That is very much true, because government support is a political thing. It is not private institutions taking a view on this and saying, ‘We think it is a good risk/reward for us’. It is very much backed by Sinosure and this kind of thing, because the government says, ‘You have to do it’. It is a very different approach that cannot be compared to any organisation around this table.
Daniel: When Iran opens, people are going to be looking for solutions to get the receivable out, rather than cover the risks. Cash is available; cash could possibly be a preliminary function of the market. It is a question of how, in a compliant manner, it can go back to the sellers. That could be a bigger challenge in the first couple of months as the market opens. I would think that around that time, in the first six to 12 months, a lot of global corporates and banks will be setting up lines for their Iranian counterparties. Banks in the UAE had Iranian dealings before the sanctions were put in place and the same can be revived once the regulatory guidelines are clear.
Bhandari: Didn’t Emirates NDB and others have an office over there?
Daniel: We do have a rep office in Iran but we have not changed our position on Iranian sanctions post-implementation day. We would potentially look to reactivate our business in Iran once we have clarity on the regulatory aspects and following consultation with regulators
and correspondent banks.
Bhandari: This is my last question on Iran, because it is a hot topic and it keeps going on and on in debates as it did in the GTR Dubai conference, and it appears that no one has an answer yet. They are pumping more oil than they did ages ago, and somebody is buying. It could be what you are alluding to; with some countries business has commenced and they are therefore able to pay for it, so to speak.
Kapadia: It is too early to say what is going to happen in Iran. All the demographics, the economic indicators, and the potential opportunities are well-known, but there is a regulatory framework that prohibits banks. Unless that regulatory framework allows banks to to do the business and make that opportunity come to life, it will not change.
Once the correct regulatory framework is there to support it, only then will banks move towards Iran. That is the first step.
After that, banks from Iran will need to start integrating into the global system. I am pretty sure that today, Iranian banks do not have corresponding networks, so if they need to clear dollars, who are they going to clear with? Even if the regulatory framework is in place, they do not have a bank account, so someone needs to go there to get the KYC sorted out. We are not talking about something that is going to happen quickly, but it is going to be a slow process.
Bhandari: Moving on, does anybody have a burning topic they’d like to talk about?
Kapadia: I actually wanted to pick up on the liquidity situation that is currently changing. It would be interesting to discuss in what ways corporates, banks and SMEs are actually looking to manage this. It is no surprise to anyone that dollars are less available than they were one year ago, and even less so than they were two years ago. When I go to corporates, I see them doing some very, very smart things. A lot of the treasurers are saying, ‘I need to increase the cash that I am keeping on my balance sheet, and I need to be shorter on the cash conversion cycle’. As liquidity gets tighter, money is going to move towards stronger credits and it is going to move towards shorter tenors.
Bhandari: Is that risk illusion, or a liquidity issue?
Kapadia: It is the desire to have more cash, and the way they seem to be approaching that – and this is one of the big demands that we are getting – is a shorter cash conversion cycle. Either increase the days payable outstanding (DPO), or reduce the receivables outstanding. That is what the corporate treasurer wants. Procurement and the commercial team want exactly the opposite. They say, ‘If you need me to sell more, instead of 60 days, I need to provide 90-day credit to the buyer’, and the procurement team are saying, ‘I need to pay my supplier faster, otherwise they are going to fold up and go home’. This is what they are talking to us about, saying, ‘Give me solutions on the DPO side. Give me solutions on the days receivable outstanding side’, and that is leading to conversations around supply chain financing and receivables financing.
Bhandari: Let us look at the dollar issue: Citibank, is that true, and if so, why?
Khan: I subscribe to the view that has been given by NBAD. We are having many, many more discussions across the board with corporates and FIs on raising US dollar funding than we were this time last year. In addition, the dialogue is also supplemented with a correction in asset pricing which is a natural consequence of growing demand and scarce supply.
Additionally, across both the corporate and public sector, clients are looking to create greater efficiency across their working capital cycle, and supply chain finance solutions have become much more topical in discussions. For example, in the UAE, Citi has worked closely with the government of Dubai to create smart payment solutions including commercial cards and also with the likes of Etihad Airways on supply chain financings to create greater efficiencies in their payments to suppliers.
Duraiswamy: Being a local bank, obviously, dollars are a huge constraint. Working capital efficiencies have always been in focus from a transaction banking perspective, but what has changed – in the last two quarters, at least – is that the flexibility that we used to give corporates is no longer there. The mindsets have changed from a credit perspective from cycle to cycle, so it is not that the client wants the liquidity; it is more that the bank does.
Patel: We could also look at the US dollar funding becoming dearer in a different perspective. Previously, when the energy prices were higher and the GCC governments – and therefore the local banks – had substantial US dollar liquidity, the pricing in GCC markets had dropped to levels that were not always fully reflecting the underlying risk of the borrowers. Personally, I believe that the recent move up now enables lenders to generate returns more commensurate with the risks than was the case earlier.
Bhandari: Is that working capital efficiency, or has the risk increased and therefore it is getting priced appropriately?
Daniel: In the recent past, whenever there have been cycles of excess liquidity, there has been a tendency to dilute credit underwriting standards to meet business demands, resulting in an increase in defaults once the excess liquidity waned. In the current environment, when there is pressure on liquidity, the pricing is returning to normal levels, where risks are being assessed with full visibility over working capital cycle and pricing is commensurate to the credit risk and the industry where it is being applied.
Bhandari: Was it the same situation in the Levant?
Ghosn: Liquidity was never an issue in Lebanon for example. What was challenging in the past for banks that have business ties with corporates in the Gulf, was the very low pricing that regional banks offer compared to the pricing offered to the corporate clientele back at home. We saw a number of large Lebanese corporates establishing relationships with banks in Dubai and the GCC, benefiting from the significant spreads between the GCC and Levant.
Another point to highlight is the shift that we have seen over the past years from general working capital financing into specific transaction financing or self-liquidating transactions. Now banks and corporates, especially those active in trade finance, are engaged more in structuring the financing on the back of specific import/export flow rather than general working capital financing. As mentioned earlier, it’s the whole trade cycle that the banks are now interested in.
In the Levant, it is not completely different from the GCC when it comes to trade finance cycle in its broad terms; products and cycles are more or less the same. What is different is the type of challenges that we have over here, which are different from the GCC. Another difference is the higher pricing environment. For example in Lebanon lending interest rates are significantly higher than in GCC markets, whether for general lending or trade finance lending. Today, if pricing increases in the GCC, as we have been reading lately, we see that this may be an opportunity for us to be competitive when it comes to providing funded trade finance facilities to corporates active in the GCC. This will be favourable for Levantine banks present in the GCC, like Bankmed, or those that trade actively with the GCC.
Sethi: I agree with the point made that lack of liquidity is driving better lending behaviour and that name-based lending has to stop. We have to know the commodity and finance the transaction, and exactly as you said, know who you are buying from two steps up the road and who you are selling to two steps down the road. Then, in bad times, you have the experience and you know the potential bad accounts.
Daniel: I would like to make a point on insurance, which is only widely accepted within the UAE market. We have had separate discussions on this, in terms of the fact that credit insurance is gaining acceptability in the UAE, in most banks at least, in terms of credit risk mitigation. As an industry we need to work with the regulators in the UAE for acceptance of credit insurance as a valid risk mitigation tool providing capital relief avenues to banks.
Holmes: This is a good idea; we have discussed it with other brokers, and we think there should be a panel of banks that approach the central bank with a proposition, or at least some form of examples. Certain parts of the rest of the world do recognise it, even including the nuclear exclusion, which is outside of your control. Therefore, it should not necessarily preclude Basel III from applying.
Bhandari: Let’s go around the table for anyone who wants to express a closing statement on any topic that we spoke about, or any trade-related issue that they want to comment on.
Ghosn: Talking about potential growth, I see growth in trade finance coming from Africa. As far as my bank is concerned, we do have a focus on Africa, mostly West Africa in addition to East and Central Africa. Another area of growth is south-south trade. Historically, this south-south trade flow had been catered for by banks in Europe, but given the positioning of the UAE as one of the major global trade finance hubs, we believe that we are well-positioned, like other banks present in the UAE, in order to be able to compete and to be quite active in this flow.
Reyes: We have seen a big change in the last two or three months, in terms of the reality of the market. It is becoming more common sense; pricing is becoming more reasonable, and that is definitely an opportunity for the future, to make it a healthier sector. In terms of where we have the bigger changes in the FI market, we are seeing many more banks approaching us for bank-to-bank financing, which is something that no one was talking about one year ago, or very few banks were. Now, we can see that. There is a liquidity issue in the market, and that is something that is being reflected.
Alzarka: 2016 is going to be a year of challenges, but a year of opportunities as well. It is time to move on and to position yourself for those opportunities, and I agree that Dubai is very well-positioned for this, whether it is for the Middle East, the south-south trade, or Iran, if it does materialise. We are in a good position, and I do not believe that things are as gloomy as people would like to portray them today.
Zain: The UAE is in a very fortunate position, where it can see all the development going on in Africa, and Iran opening. Regional banks would be in a very similar situation. They can take a massive leap in terms of capturing the flows and working out the transactional flow within south-south trade.
Bhandari: Was it worse in 2008 or now, and will it turn around quicker than it did in 2008?
Daniel: Sentiments were different. In 2008, the sentiment was centred on defaults in the large corporate space and real estate sector, but this time around, it is more rooted within the SME space. There are very different sectors that are at play here. China and Iran will prove to be quite decisive in terms of which way the market will start trading, and to answer one of your first points in terms of region, market or underlying commodity, the answer is there, in terms of consolidating your position with your clients and following them in their markets, because they know their core business better.
Bhandari: Would it work the other way round, with you choosing your clients according to what you want to do – specialisation?
Daniel: No, because you already know your key client relationships and their strengths. This is a transition phase where the weak names will be weeded out. The strong ones will survive, and you stay focused on those clients, and support them as they look to diversify their risks by adding new markets and product lines.
Zain: That is an issue within the banking industry itself. You do not want to push your clients to what you want to do. It should be the other way around; you should be following what clients want to do, like he said. They know their business much better than you will ever, and you should be following them.
Bhandari: Would the weakness in the surrounding market weaken that possibility?
Holmes: From an Africa perspective, when insurance is at its absolute best, it is what we call an ‘enabler’; it enables you to do more than you would otherwise do. We found that if you looked at the origins of the insurance, it was simply to help people who were going abroad, investing or lending into potentially difficult countries. When you think about Africa – and particularly East Africa, simply because of the logistics of it and where you sit – and some of the limits that you will need to get to, it may be that insurance can enable you to get to those limits. Therefore, it can reduce your overall exposure, or increase your ability to do that. We are there to help, and enable the trades that you would like to do with the clients that you would like to follow.
Bhandari: Can somebody else enable that, other than insurance?
Sethi: This is a great opportunity for a very commodity-focused, a very trade-finance focused, state-aligned – not state-supported – privately-funded institution that will build expertise in specific commodities and new markets which are currently less understood. I think we heard that message today; the current volatile environment is perfect for starting such an institution – in short, the Emirates Export-Import Bank, sponsored by Dubai’s Economic Development Department (DED).
Kapadia: To summarise, the environment is different, but it is still an environment that has opportunities. You need to look at different products; move away from traditional trade-based products and more towards value-added products like supply chain finance and receivables finance. On the geographies, it is better for banks to look at trade in an integrated fashion across the networks; rather than different parts of the bank acting as independent entities. Increasingly, that is what clients are looking at. The last summary point would be that things are going to look different on liquidity, but this is not 2008. It is a bump in the road.
Patel: As we end, I would like to comment on the position of Dubai as a trade hub. The current environment, in my personal opinion, is tailor-made for Dubai to shine.
I expect the Dubai government to maintain its positive stance on trade-related infrastructure investments in the run-up to Dubai Expo in 2020, and of the 15 to 20 million visitors expected during the Expo I am confident that many first-time visitors will discover Dubai to be an ideal place to cover their business interest in the Middle East, North Africa and South Asia region and beyond.
Dubai is well-known globally for the tallest man-made tower in the world – Burj Khalifa, however not many know that Dubai invested in making the largest man-made harbour over 30 years ago and the Jebel Ali Port continues to be the backbone cementing Dubai’s position as the preferred trade hub of the region. Dubai is now said to be investing up to US$30bn over the next 10 years to create the world’s largest airport and custom-build wholesale logistic infrastructure around it.
This infrastructure, when realised, has the potential to catapult Dubai to a commanding position enabling it to become a leading global trade hub and an efficient transit point in the south-south and east-west global trade flows.
El Maayergi: I totally agree. Once this port is connected with an air hub, this will be the only connected water-to-air pass globally, and it will make a big impact at this point in time for UAE to become central.
Bhandari: I personally will concur that this is not 2008 and also agree with what was stated earlier. The UAE and Dubai are well-placed to continue leading the growth in world trade. Thank you all for your time and valuable contribution and comments.