World trade may be growing more slowly since the financial crisis, yet demand for trade finance is accelerating.
Heightened risk in global markets has fueled the appetite for traditional trade finance instruments to cover potential defaults. The best trade banks remain profitable and the biggest among them are building market share by investing in electronic platforms.
Annual global trade growth has averaged about 3% in recent years, compared with 6% in 1983‒2007, according to the Paris-based International Chamber of Commerce (ICC). Nevertheless, the ICC’s 2015 global survey of trade finance, released last September, found a clear rise in demand for trade finance instruments. Of the 482 banks in 112 countries that responded to the survey, more than 63% reported an increase in trade finance activity over the previous 12 months.
“Increasing demand for trade-risk coverage products means increased business for trade finance banks. The underlying message is that there is an increased perception of commercial, bank and country risks in global trade markets,” the ICC said. Small and medium-size enterprises are having a difficult time getting funding from trade banks, it said. Of all trade finance proposals that were rejected, 53% were submitted by SMEs, the ICC found, while 79% of large corporations had proposals approved.
Nearly half the banks surveyed terminated correspondent banking relationships because of the cost or complexity of complying with new regulations.
Vincent O’Brien, chair of the ICC Banking Commission’s market intelligence department, said the results of the survey show that “not all is gloom and doom, despite the fact that the trade finance industry is certainly facing challenges and the trade finance gap is a clear issue.” Banks, he said, “have increased their capacity to provide trade finance, and we have an array of alternative lenders—such as specialist financiers, export credit agencies and multilateral development banks—stepping up to fill the trade finance gap.”
Growth in US demand for trade finance is benefiting the big banks, according to Greenwich Associates. “As trade finance becomes increasingly electronic, business is naturally going to gravitate to the biggest providers, who have made significant investments in their technologies,” wrote Andrew Grant, a consultant at the firm, in a recent report.
North America initiates 56% of its trade finance business electronically, compared with 48% for Western Europe and 28% in Asia, according to Greenwich Associates. The firm said Western Europe is moving closer to the North American model, allocating ever bigger shares of wallet to their lead banks.
In Asia, big corporates are turning to comparatively new market entrants, including local and regional banks, and the gap between the leading global banks and the rest of the market is narrowing. Many of these new entrants, Greenwich says, offer extremely competitive pricing, hoping to cross-sell other financial products to their large Asian trade customers.
Global Finance editors, with input from industry analysts, corporate executives and technology experts, selected the best trade finance banks in 84 countries and nine regions. In addition to awards for Best Bank for Trade Finance and Best Trade Finance Program, we added a number of new global awards this year: Best Bank for Commodity Finance; Best Trade Document Management; Best Trade Credit Insurance Provider; Best Bank for Export Finance; Best Bank for Structured Trade Finance; Best Bank for Trade Finance in Emerging Markets; Best Bank for Trade Finance in Frontier Markets; and Best Preshipment Financing Solution.
Criteria for choosing winners included trade-related transaction volume, scope of global coverage, customer service, competitive pricing, risk management and innovative products, services and technology. Winners are the banks that best serve the needs of corporations as they engage in cross-border trade.