By Gordon Platt
BEST TRADE FINANCE BANKS 2012: REGIONAL WINNERS
Citi's trade finance business set records across the board in 2011, as all of the pieces seemed to fall in place for the bank. "We were in the right place, doing the right things at the right time," says John Ahearn, managing director and global head of trade at Citi, who is based in New York.
"Issues in Europe, including sovereign debt concerns and lack of dollar liquidity, allowed us to take advantage of our capabilities and the fact that we are a US bank with plenty of dollars," Ahearn says. As European banks deleverage, they are withdrawing from the commodity finance business and, as a result of liquidity constraints, those that remain in the business are raising prices, Ahearn says.
Citi provides trade finance services in 86 countries and boasts a global network that enables it to cash in on globalization and shifting trade flows. Mature markets saddled with huge budget and trade deficits are struggling to breathe new life into their export activities, while developing markets have experienced an increase in both economic growth and exports. "More and more of these exports are now driven by South-South, instead of North-South, trading activities," Ahearn says. In the past decade, emerging markets accounted for 70% of world growth, and they now generate 2012about 37% of global trade volumes, according to Citi.
In the Americas, Citi has trade experts strategically placed across the US, Canada and Latin America. The bank is one of the largest issuers of commercial letters of credit in the US. In Latin America, Citi's trade services network spans 22 countries. The bank has completed the full rollout of its Web-based supply chain finance solution in 14 countries in the region.
"Demand is continuing to increase for supplier financing, and most of the major companies are coming to us with global mandates," Ahearn says.
Meanwhile, Citi is working hard to benefit the broader trade finance industry through the multi-bank global trade program it created in 2010. "We did this to create capital relief for the banks, as well as for the additional liquidity it provides," Ahearn says. ING Bank and Santander recently became co-sponsors of the program, known as Trade MAPS. During its second phase, the program will be extended to another seven interested banks, according to Ahearn. Participating banks originate and fund trade finance assets through the structured issuance of asset-backed securities and commercial paper.
New banking regulations aimed at constraining risk-taking on the part of banks and strengthening their ability to absorb losses, could stifle trade, Citi says. The more stringent capital ratios proposed under Basel III, for example, do not take into account the low-risk nature of trade finance and the role of official agencies, such as the US Export-Import Bank, in improving liquidity in the market, the bank says.
HSBC's trade and supply chain division has an extensive regional network of specialists in 20 countries and territories in Asia. In 2011 the bank continued to expand its client base across the region and recorded considerable growth in overall trade turnover, transaction count and total trade revenue."I want to congratulate our trade and supply chain colleagues in Asia, who continue to perpetuate HSBC's strong commitment to this region," says Simon Constantinides, regional head of trade and supply chain, Asia Pacific (ex-Hong Kong and Macau). "Our regional network of dedicated trade and supply chain specialists are supported by innovative products, services and solutions, positioning HSBC as a leading force in financing both intraregional and global trade, led by Asian emerging economies," he says.
HSBC remains the leading trade bank in Hong Kong, with a 23% market share as measured by SWIFT messages. It also has the largest geographical coverage among foreign banks in China, with 109 outlets, including 24 branches and 85 sub-branches in 26 cities. HSBC is one of India's leading financial services groups, with 50 branches and 150 ATMs in 29 cities.
HSBC provided more than $12 billion in forfaiting financing to clients in the Asia Pacific region in the first three quarters of 2011, an increase of 50% over the same period a year earlier. Last June the bank merged its trade and supply chain division with its receivables finance business. HSBC says this enables it to take a holistic view of its clients' open-account needs.
HSBC was the first bank to conduct renminbi (RMB) denominated trade settlements across Hong Kong, Macau and all of its Asean sites. It has RMB capabilities in 58 markets globally and has completed cross-border RMB trade transactions in 34 markets. In Japan it was the first bank to extensively offer RMB products on a commercial basis.
BNP Paribas is one of the leading trade finance banks in the world, with a network of 100 trade centers in more than 60 countries. "Our customers appreciate the fact that all of their international trade transactions can be done by the same bank everywhere in the world," says Thierry Josz, head of global trade solutions (GTS), who is based in Brussels at the headquarters of BNP Paribas Fortis.
"The world of trade is converging with the world of cash," Josz says. Beginning in Asia in 2011, GTS introduced its Connexis Supply Chain, which includes supply-chain management tools and e-banking capabilities that provide clients with complete visibility and control of their accounts with their suppliers worldwide. "In certain active trade markets, such as China and India and the [Arab] Gulf, it makes sense to have cross-selling of trade and cash management," Josz says.
"We are prepared to pay the price for experienced people," Josz says. Experts at the Brussels competence center field questions from around the world on specialized services, such as back-to-back letters of credit and international guarantees.
BNP Paribas is ranked first in France in terms of the value and number of letters of credit processed. The bank has an automated LC process with a customized approach for structuring documentary business and specific tools for big importers, especially in the retail industry.
The trade finance business in Europe has been affected by the liquidity crisis and a shortage of dollars, Josz says, which is, in turn, having a major effect on pricing, making it difficult for European banks to compete with US institutions, which have access to lower-priced dollars. In the long term, some global traders will turn to non-dollar currencies, which will lose 5% to 10% of its share of international trade, Josz says.
Europe is the most important market for BNP Paribas, which does many transactions in euros, he says. Until last September, when the euro crisis became more severe, 2011 was a good year for trade finance, Josz says. The outlook for 2012 is largely unpredictable, but with the potential for a signal from its leaders that Europe has financial solidarity, Josz is hopeful for another good year.
Sweden's SEB has worked closely with a majority of the corporations in the Nordic region since the mid 19th Century. "All our efforts stem from the firm belief that quality and the ability to deliver the best possible customer experience pay off," says Lars Millberg, head of GTS (global transaction services) for corporates. "We need to understand our clients, their customers, their markets, their products and their people—then we can do amazing things," he says. In December 2011, rating agency Standard & Poor's upgraded SEB's long-term rating to A+ with a stable outlook from the previous A, highlighting the bank's leading position in Nordic corporate and investment banking and its strength in wealth management, insurance and mortgage lending, among other areas. SEB offers a wide range of services in its home country, as well as the Baltic nations. In Denmark, Finland, Norway and Germany its operations focus on corporate and institutional clients.
SEB has the largest trade finance network of all Nordic banks. It opened an office in Hong Kong in 2011. The bank has experienced rapid growth in its trade finance market share in recent years.
"Many of our corporate clients are very export-oriented because of the relatively small size of their home markets," Millberg says. The portion of gross national product that is exported from the countries of the Nordic region has increased rapidly in the past 15 years, he says. "At the same time, the focus of Nordic exporters has shifted from developed countries to emerging markets," Millberg adds. Today more than 50% of Nordic exports go to countries outside of the OECD countries, he says.
As emerging markets develop, they need infrastructure, telecommunications, roads, switches and many other products and services that Nordic and German corporations are so good at delivering, Millberg says. Since 2007, SEB has had a double-digit increase in its exposure in emerging markets, he adds.
SEB offers fully integrated trade and supply chain financing, cash management and receivable finance services. "The most important challenge is to continue the development of our people who meet the clients. The trick is to work in teams in order to demonstrate cross-product capabilities, including liquidity management and process efficiency, not just working capital and risk management skills," Millberg says.
CENTRAL & EASTERN EUROPE
Italy's UniCredit, the largest transaction bank in the heart of Europe, has a direct presence in 50 countries. It has successfully integrated numerous banks in Central & Eastern Europe into its network, and is among the top three financial institutions in most CEE countries.
The global transaction banking (GTB) unit of UniCredit comprises 2,000 professionals specializing in cash management and e-banking, trade finance, supply chain management, structured trade and export finance, and global securities services. UniCredit offers a single clearing gateway throughout Europe and a single point of entry for letters of credit and guarantees.
Within GTB, the transaction sales and trade services department offers traditional trade finance products and services, as well as innovative supply chain finance solutions. UniCredit serves both financial institutions and corporations worldwide.
According to the bank's economists, the outlook for GDP growth in the emerging countries of Europe is substantially better than in Western Europe, although it includes a wide range of expected growth rates.
The Central and Eastern European region is still strongly dependent on Western Europe, both on trade flows and foreign direct investment, which come mainly from Germany and Italy. UniCredit predicts that the process of economic convergence in the region will go forward and that this will have a favorable impact on trade flows in CEE, as countries mature and develop their niches in specialized production. However, the coming year will be a trying time for the region. With more than 27,000 foreign trade messages processed in 2011, UniCredit is the market leader in CEE for LCs and guarantees. The bank also has a strong position in the discounting and purchase of receivables.
Arab Bank has a global network of more than 500 branches in 30 countries, with the largest geographical coverage of any bank in the Middle East and North Africa (MENA). "As one of the oldest banks in the Arab world, we have long appreciated the role that trade relations play, not only in bringing the region together but also in promoting growth and economic well being," says Nadya Talhouni, senior vice president and head of cash management and trade finance.
"As a MENA bank with an international presence, trade finance has long been an integral business component of Arab Bank's strategy," Talhouni says. "We understand our customers, and they appreciate working with a bank they trust and one they know is committed to their trade finance needs."
Arab Bank has established a centralized cash management and trade finance business at its Jordan headquarters to ensure that its overall commitment to the business is well supported and managed. "We remain focused on our customers and will work to exceed their expectations, be it in our product offerings or service excellence," Talhouni says. The centralized approach will ensure that the bank's competitive edge in expertise, pricing and products will be maintained at the same high level in all countries where it operates, she says.
Arab Bank maintains local trade teams in China, South Korea and Singapore to serve the growing cross-border trade between the MENA and Asia Pacific regions. Arab Bank Australia, established in 1986, also offers a full range of trade finance products. Trade is an important part of Arab Bank's business-development strategy globally.
South Africa–based Standard Bank has invested heavily to establish a solid presence in 17 nations in Africa. Its strategic relationship with Industrial and Commercial Bank of China gives it an edge in facilitating growing trade flows between China and Africa.
"This award emphasizes both our strength in trade finance and our position in Africa as the prominent financial institution in the region," says Jerry Pearce, managing director, transactional products and services, and global head of product management in the corporate and investment banking division of Standard Bank. "As we continue to operate in an uncertain world and environment, our ability to deliver the right trade solutions to our clients remains of paramount importance to us."
The bank's global network extends to 13 countries outside Africa. "Looking forward, we are investing heavily in our trade capabilities with new and market-leading platforms due for delivery," Pearce says. "Through this we aspire to retain and strengthen the position we have attained."
The growth in global trade, particularly between emerging markets in Africa, Latin America and Asia, has increased demand for Standard Bank's cross-border trade expertise. The bank's presence in emerging markets globally gives it the local perspective necessary to meet clients' requirements for trade-related products and services. These offerings are integrated with other units of the bank, including commodity and currency hedging, structured finance and offshore guarantees.