Latest Insights from Trade Finance Global - Trade, Receivables, Supply Chain

WHITEPAPER: Asia’s digital trade landscape heading into a new decade

Ross J. McKenzie — Tue, 31 Mar 2020 07:35:30 +0000

As the region solidifies its global trade leadership, banks gain an opportunity to serve new finance needs as long as they make needed technology and process changes.

A boom in Asian trade and a new challenge for banks

By the end of last decade, Asia had further established its position as an integral cog driving the global trade machine – but that’s just the beginning of the story for traditional banks serving businesses in the region. The continent continues to emerge as a leader on the world stage, producing, trading and consuming over two-thirds of the globe’s major commodities. The region is also on track to top 50% of global GDP and drive 40% of the world’s consumption by 2040.

Geopolitical and economic developments in the second half of 2019 further shifted focus from the Western seats of power to Asia. The majority of Asian countries have significantly reduced tariffs for trade among themselves, while signing a free trade agreement with India and China to capitalize on U.S.-China trade tensions. In addition, Japan, Australia, Canada and eight other countries ratified the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, from which the U.S. withdrew.

Oxford Economics has estimated the potential impact of the U.S.-China trade war to be US$360 billion. Even with Asian trade flows expected to grow 4% to 9% a year from 2017 to 2026, vs. just 2% to 5% expected growth in U.S.-based trade corridors, according to the International Chamber of Commerce (ICC), the region is far from reaching its full potential.

Leumi UK: The UK – Israel trade corridor post-Brexit: A closer relationship?

Deepesh Patel — Tue, 22 Oct 2019 15:38:10 +0000

Internationally renowned as the ‘start-up’ nation, Israel presents a plethora of exciting trading opportunities for the UK and will be an important partner as it prepares for its formal exit from the European Union (EU), finds Leumi UK’s whitepaper

As Brexit draws closer, establishing lasting relationships with key trading partners has become a priority for the UK government. The first to sign a bilateral trade agreement with the UK, Israel presents a highly compatible trading partner and is leading the way forward in a number of key industries – particularly in the technology space. Levels of bilateral trade between the two nations have been steadily increasing, hitting a record-breaking £8 billion in 2018 – with growth likely to accelerate in the coming years, finds Leumi UK’s whitepaper.

“The UK and Israel have become closer than ever trading partners and have a lot to offer each other in this space,” says Leumi UK’s CEO, Gil Karni. “Israel is the global leader when it comes to research and development – its pioneering discoveries in the hi-tech space, coupled with its reputation for innovative, fast-growing start-ups, can give the UK an important boost in the medical, sustainability and education sectors. At the same time, the UK is the leading international financial and professional services centre in the world – its financial clout in terms of capital-raising, together with a young workforce keen to invest in cutting-edge ideas, means London is a perfect second home for expanding Israeli companies.”

In its new whitepaper – entitled The UK-Israel trade corridor: how the UK and Israel could benefit from a closer trading relationship – Leumi UK outlines how Israel’s expanding and diversifying offering in the hi-tech space – which won more than half of the US$6.47 billion in capital raised for start-ups in Israel last year – could benefit the UK through initiatives such as the UK-Israel tech hub (sponsored by the UK Embassy in Tel Aviv). It also explores how Israeli business could benefit not only from the UK’s exceptional financial sector, but also the opportunity to expand from their own ‘Silicon Wadi’ to London’s ‘Silicon Roundabout’ – combining two of the fastest growing tech clusters in the world.

Leumi UK will play a key role in the strengthening of this already unique trading relationship, with plans to bolster its offering in the hi-tech space, which includes a unique Residency & Networking Programme. The Programme offers Israeli hi-tech start-ups a route into the UK market through the use of its fully-wired London offices and access to its extensive network of contacts in both the UK and international hi-tech space.

Whitepaper

ICC report reveals much work remains to be done to promote the fair regulatory treatment of trade finance

Ross J. McKenzie — Tue, 28 May 2019 11:29:01 +0000

Paris, 28th May 2019. The International Chamber of Commerce (ICC) Banking Commission has today released a whitepaper urging the trade finance industry to work together to ensure that regulation does not hinder the availability of trade finance and remains relevant in a digital landscape.

Regulation and compliance requirements, while well-meaning, have led to the exacerbation of the US$1.5 trillion trade finance gap.
While work to date between industry and regulatory bodies has been successful, industry- wide collaboration and lobbying remains necessary to ensure the fair regulatory treatment of trade finance.

The International Chamber of Commerce (ICC) Banking Commission has today released a whitepaper urging the trade finance industry to work together to ensure that regulation does not hinder the availability of trade finance and remains relevant in a digital landscape.

Banking regulation and the campaign to mitigate the unintended consequences for trade finance

The milestone report, titled Banking regulation and the campaign to mitigate the unintended consequences for trade finance, takes a close look at the regulation and compliance requirements that have come into force since the 2007 financial crisis and the industry’s subsequent efforts in promoting their fair treatment of trade finance instruments.

Figure 1: Banks’ main obstacles to growth and concerns relating to the provision of trade finance

While well-meaning, these requirements have unintentionally led to the exacerbation of the US$1.5 trillion gap between the demand and supply of trade finance, which has especially impacted those most in need of financing, particularly in emerging markets.

“Clarification and harmonisation of regulation are fundamental to mitigating the serious threat that de-risking poses to the financial system,” says Olivier Paul, Director, Finance for Development, ICC. “ICC, for its part, is proactively working with regulatory bodies worldwide to promote the fair treatment of the industry and increase access to the market.”

The report examines a number of areas where successful lobbying has led to improved treatment of trade finance instruments, notably:

The amendment of Article 55 of the Bank Recovery and Resolution Directive (BRRD), allowing banks to apply for a waiver with the Single Resolution Board if they consider there to be obvious explanations that justify not applying the rule.
The reduction in Net Stable Funding Ratios (NSFR), allowing for more competitive rates in comparison to other jurisdictions.
The exoneration of the leverage ratio for some export credits extended by commercial banks and covered by official export credit agencies.

Paul adds: “Despite the progress achieved to date, significant work remains to be done. With regulatory adoption and implementation processes taking up to a decade, it is essential that discussions take place from the earliest of stages if we are to effect efficient and meaningful change.”

The report also outlines how digitalisation could help to increase cost and time-efficiency, aiding the fulfilment of compliance and regulation requirements. Distributed ledger technology, for example, could help make transactions more secure, by giving more power to banks and regulators to trace and evaluate financing, in turn alleviating some risk.

Commerzbank: Is the BPO a gateway for further trade finance technologies?

Nikhil Patel — Fri, 01 Feb 2019 09:08:20 +0000

Bank Payment Obligation can act as a gateway for further trade finance technologies, says new Commerzbank whitepaper

The whitepaper, “Leading the path of digital evolution” explains how increased market adoption of the BPO may spur the digitisation of trade:
Commerzbank notes an increased customer interest for the BPO due to growing demand for faster and digitised processing of trade transactions
The paper also highlights the hurdles to the tool’s wider use, such as raising customer and bank awareness of its advantages

In the face of slow market adoption for the Bank Payment Obligation (BPO), which serves as a legally binding undertaking to execute payment for goods or services, Commerzbank has launched a new whitepaper, “Leading the path of digital evolution”, which explores how to boost BPO adoption among banks and – crucially – their corporate customers.

2010 was a milestone for the BPO: it was then that it moved beyond the “proof of concept” stage and reached its “pilot”, as Standard Chartered Bank’s internal branch network facilitated a transaction between BP and Octal. The first cross-border transaction, between Bank of China and Bank of Montreal, took place the same year.

The BPO has since matured to its “commercialisation” stage. More corporates have used the instrument, and the number of “BPO- active” and “BPO-ready” banks is now about 40, situated primarily in Asia and Europe. Such BPO-active banks are citing growing BPO business and reporting that – slowly, but steadily – more corporates are being onboarded for the purpose of completing new BPO transactions.

Market adoption is crucial to the success of any given product; the BPO itself continues to be adopted because it both fills existing gaps in the market and satisfies the demand for value-added, client-centric digitisation. Yet market adoption of the BPO has been relatively slow.

Angela Koll, Specialist Product Management Trade, Supply Chain Finance & Innovation at Commerzbank, says: “The BPO’s future potential – both as a transformation in its own right and as a gateway for other trade finance technologies – could set the industry on course for greater transaction optimisation and efficiency. It can also provide banks with the opportunity to better meet the growing demands of trading corporates, for faster, more transparent and digital process flows.”

“What’s more, BPO offers yet greater potential in the Supply Chain Finance space, where it can serve as an enabling framework by electronic matching of data of the physical supply chain to provide solutions along the financial supply chain in a digital environment. Not only does it secure the payment itself, but it can also provide security for financing against the payment by the recipient bank or the obligor bank, and allow a deferment of payment terms and maturity date. This is crucial for giving the buyer more autonomy over their working capital cycle and the supply chain in which they work, as well as preserving the liquidity and credit facilities of the supplier.” added Koll.

The paper suggests that adoption of the BPO has been slow, so far, because: trade is traditional, yet complex; there remains a scarcity of banks available to transact with the BPO; corporates and banks still need to be made aware of the instrument’s appeal; and the URBPO still largely position the BPO as a tool for banks, rather than for corporates as well.

How does a Bank Payment Obligation Work?

A BPO transaction flow consists of 2 data-matching processes:

1. Matching of Baseline Data (Establishment of Baseline)

The buyer and seller agree on the purchase order data as the basis for triggering the payment obligation after shipment. This data protocol is called the “established baseline”. Now the seller already has the assurance to receive payment at maturity if shipment is effected according to the agreed terms and the data presented in compliance with the baseline. The data flow is channelled through the involved banks and processed on the SWIFT TSU.

2. Matching of Trade Data (BPO becoming due)

After shipment, the seller provides the invoice and shipment data for matching against the baseline on the SWIFT TSU and sends the trade documents directly to the buyer. Upon successful matching of the data, the BPO becomes due and the obligor bank is automatically obliged to pay the BPO amount at maturity.

Koll adds: “While the trade finance community will pursue DLT advancements in the coming years, the BPO is available now – and has also already been demonstrated to be both commercially viable and valuable. To reach the tipping point, we need BPO-active banks to take a strategic approach to promoting the BPO as a product, both to their corporate customers and – critically – to other banks.”

Summary of the Benefits of the BPO

For all Parties:

Enhanced trading relationship
Enhanced trade opportunities and processing and use of the four-corner model

For both banks:

Less effort and lower cost of onboarding clients (thanks to there being no additional KYC demands)
Enhanced bank-to-bank international relations
Fast, automated and seamless transaction processing
Risk mitigation – and therefore lower costs – involved with trade finance
Standardisation with other banks through the URBPO and ISO 20022TSMT Improved speed of handling mismatches on behalf of the client
Improved visibility and transparency on the trade transaction
The ability to “mine” the data that support transactions for future business development

Benefits for the seller

Guarantee of payment in full on a specific due date
Ability to raise finance on a BPO with deferred payment terms
Lower implied cost of funding than would have been incurred under other financing structures

Benefits for the Buyer

Guarantee of goods received as expected
Flexible financing options at several stages of the supply chain
Controlled input into the specifics of the payment conditions, as facilitated by data-matching on TMA/SWIFT TSU
Early receipt of documents to avoid storage charges at the port of discharge

Benefits for Both Corporates

Fast, automated and seamless transaction settlement processing
Improvement to the efficiency of the working capital cycle
Risk mitigation and financing for open account transactions
Reduction of complexity involved with paper-based processes

Commerzbank successfully implemented its BPO front end in November 2018, thereby completing its digital BPO processing offering. The front end allows corporates to enjoy digital end-to-end communication with the data matching engine of SWIFT (SWIFT TSU). The BPO front end supports fast, automated and seamless transaction settlement processing of the BPO and improved efficiency to their working capital cycle. Around 40 banks are offering BPO handling for trade business at the current time.

Read the white paper here.

RELEASED: Brexit Business Videos from TFG

James Sinclair — Fri, 21 Dec 2018 16:02:37 +0000

In light of the recent news on postponing a Commons vote on the deal, this content could assist your business with decision making. We’ve now released the highlights videos and interviews from the event, as well as your survey results and a series of infographics following the event.

Trade Finance Global, in partnership with Gateley Plc and Nucleus Commercial Finance have now released a series of infographics and short video guides following their event, aimed at helping businesses survive around Brexit.

Earlier this year we hosted the ‘Ultimate Business Guide to Brexit’ with Gateley Plc and Nucleus Commercial Finance. You can watch interviews with our expert speakers and a highlights video here.

Infographics

Top 3 business concerns in terms of Brexit

Are businesses planning for Brexit?

Do you think there will be a Brexit deal by March?

Is volatility in the pound affecting businesses?

What should SME’s be doing in order to preparing for Brexit?

What are businesses worried about around Brexit?

Raising Finance

International Trade and Brexit

Customs, Trade and Tariffs

What is the impact of the media on Brexit?

All Videos

About The Poll

Attendees were polled live at the event and are a blend of business leaders and those who advise and support business leaders such as intermediaries and accountants. 51 respondents took part.

For more information please visit: https://www.brexitbusiness.org/