Marilyn Blattner-Hoyle, Global Head of Trade Finance at the primary insurance arm of Swiss Re, Swiss Re Corporate Solutions, speaks with Tarun Khosla, Regional Product Head at Citi, to discuss the recent trend of combining trade finance and working capital finance businesses within large banks and insurers.


In the last year, several large banks and insurance companies have announced the integration of their short-term financing and insurance solutions under one business. This discussion explores the factors that are helping to drive this systemic change in the trade finance industry and reflects on how these actions may benefit clients now and in the future.

Blattner-Hoyle: Both Citi and Swiss Re have been part of the recent trend of combining working capital and trade under one product tower. What inspired the change for Citi?

Khosla: Combining Citi’s trade and working capital products into the newly rebranded ‘Trade and Working Capital Solutions’ was driven by our ongoing commitment to ensure we are offering the best client experience. The consolidation of the entirety of the working capital portfolio, strategy, and product management responsibilities are fundamental to Citi’s customer-centric strategy towards an integrated client experience, product development through digitisation, and focus on client value generation. We believe the new combined product suite can help Citi pursue working capital financing opportunities to support our clients’ new business models.

Prior to combining working capital and trade under one product tower, a client would go to the trade division for a trade finance solution and then to an entirely different part of the bank for a working capital finance solution, which we recognise may not have been the most efficient use of our clients’ time and resources.

Furthermore, this shift makes sense because 60-80% of the funds advanced under a working capital loan are typically used to fund trade. The two products are similar in that they both tend to be uncommitted with short tenors around a year or less and used by companies for commercial needs. Therefore, by integrating working capital finance solutions with other trade products like receivables finance and supply chain finance, all the solutions that touch on working capital efficiency can be made more easily accessible to our clients.

Khosla: The insurance sector is traditionally a bit different to banks. What inspired Swiss Re Corporate Solutions to make the same change?

Blattner-Hoyle: The Swiss Re decision to combine working capital products with trade finance products under one team was driven by similar factors to those impacting Citi. We can better serve clients and brokers by giving them one point of contact and an experienced team on the full gambit of corporate and financial institution working capital and trade products. This simplifies the customer and broker experience and will make us faster without jeopardising underwriting quality.

There are nuances to the underwriting approaches, and purposes for these products, but fundamentally having them all together allows us to better optimise the capacity and consistency of solutions we can deliver to clients. Often it is the same corporate obligors on these products, so it also speeds up the analysis to have one team doing it with a big picture view.

Does Citi see any other benefits to merging the working capital and trade products?

Khosla: The other critical benefit that has emerged from this change is capital and capacity optimisation. Citi’s trade division has decades of experience in distributing assets to investors. With the combination, Citi can seek to offer working capital finance clients larger financing amounts by leveraging our risk optimisation capabilities. The combining of the two products should help improve product governance across the existing portfolio too.

Also, we believe that a centralised working capital product management team can encourage sustainable business growth by integrating technology, systems, and data requirements related to the trade and working capital products under one umbrella. This also could allow us to optimise investment spend and align the infrastructure strategy.

Blattner-Hoyle: Working capital finance facilities are often used for trade but some working capital loans are used for general purposes. Trade facilities have the benefits of being self-liquidating and underpinned by goods and/or services exchanged between sellers and buyers, and sometimes security over the same, so the outcomes when things get tough are often better. Will you favour trade products over general purpose working capital loans since they do have different risk profiles?

Khosla: Trade loans can provide the lender with comfort on the usage of funds by the borrower, by restricting the use to import and export flows. Whilst trade loans may generally be preferred over general purpose loans from a bank’s perspective (especially for non-investment grade borrowers or subsidiaries with less than full parent support), we appreciate the flexibility to offer working capital loans to our clients.

However, this added flexibility in the form of what can be less restrictive covenants may translate to lower credit risks, as supported by evidence on lower default/loss given default (LGD) rates on trade loans in comparison to working capital loans. This credit risk can impact the allocation of capital for both products.

Given the nature of underlying flows, trade loans are generally priced relatively cheaper and supported by higher credit limits than general purpose loans. At Citi, our focus is to offer to clients, where appropriate, the use of trade loans for trade purposes and working capital loans to finance other components of cost of goods sold, such as salaries, taxes, rents, leases and logistics costs. Now that both products are consolidated under the same roof within the bank, we think it may be easier to align the product and purpose to get the best overall solution for clients.


Khosla: How do insurers see the trade versus general purpose differentiation?

Blattner-Hoyle: We have a similar data view to the general market validating lower default rates, loss given defaults as well as usage given default with respect to trade products as compared to general purpose products. Therefore, we are often able to offer higher capacities and competitive pricing for insuring trade-related facilities.

At Swiss Re, our core ethos is to partner with sophisticated financial institutions like Citi and to rely on the alignment of our joint interests. Therefore, knowing that our client banks have deeper relationships and connectivity on both types of facilities gives us the comfort to cover more general-purpose facilities.

It is a positive for us that a team at Citi is now analysing trends, warning signals or defaults across both products, as often the early warning signs will show up in the trade facility, but the joined-up approach will make you more proactive on the general purpose loans in your book as well.


Blattner-Hoyle: One of the items that slows down insurance transactions is the wide array of documentation forms for all types of trade and loan products. Will Citi be creating any uniformity across documents?

Khosla: We are working on creating unified documentation, with separate schedules for trade loans and working capital loans, which we hope will make the documentation process swifter for our clients. This also should assist with our risk distribution efforts.


Khosla: In the insurance market, brokers are critical. How does this distribution aspect impact the change for Swiss Re?

Blattner-Hoyle: We already mentioned that a key reason we combined trade with working capital is that the financial analysis and capacity allocation can be united, but for us it was also about distribution channels. Our clients and importantly their brokers often distribute all of these assets through the same channels and teams.

The merging of products will help us more effectively engage with brokers and clients. Combining trade finance and working capital products creates huge opportunities for corporates, banks, brokers, and insurers to work together to enable finance and trade resilience around the world. We look forward to advancing trade and working capital finance together.