Bank Of America Merrill Lynch Supports Blockchain Innovation For Trade Finance
In an interview released on September 22, 2017, Peter Jameson, co-head of product management, GTS EMEA at Bank of America Merrill Lynch, spoke on the merits of blockchain technology and what it can bring to trade finance.
Jameson’s take on blockchain technology is optimistic and he thinks it can provide immediate benefits. He said, “The distributed nature of blockchain means that you could quite easily move from a place where a lot of things have to happen in sequence to a technology where a lot of the players involved in the transaction can do what they need to do all at the same time.” The so-called atomic swap, or instantaneous exchange of ownership, can easily be facilitated by blockchain-based settlement systems and executable distributed code contracts (also called smart contracts). Jameson said this capability is very powerful, given “the slow nature of some of the trade transactions today.”
ICOs: the next goldmine for trade finance lenders?
An increasing number of non-bank lenders are looking to initial coin offerings (ICOs) as a source of funds for trade finance lending.
ICOs – also referred to as token sales – are unregulated means of crowdfunding, using cryptocurrency. In theory, through an ICO, you can raise money from anybody, anywhere in the world.
This is done by issuing digital tokens. Early backers are usually motivated by a prospective return on their investment, as a startup’s success would often translate into a higher token value.
For trade finance lenders, it offers access to an unorthodox – and, theoretically, unlimited – pool of investors in a market that is booming. In July, a report by research firm Autonomous found that startups had raised in total a record US$1.27bn in the first half of 2017 through ICOs, while the top four ICOs of the year, according to research firm Smith and Crown, have to date raised US$660mn between them.
The C-Suite Challenges of a Trade Finance Bank
An insight into the challenges that plague the C-Suite of a bank determined to lead the trade finance business. Is Digitization the answer?
Trade Finance has been a well established and important business for Banks and Financial Institutions. Hardly any domestic or international Trade activity can take place safely and successfully without some form of trade financing, in fact as much as 80% of annual global merchandise trade is enabled through some form of trade financing. This financing can range from traditional instruments like Letters of Credit, Bank Guarantees to a more contemporary form of open account based supply chain financing.
Trade Finance Revenues Slip $2.8 Billion At Top Banks
Top banking firms across the globe saw a $2.8 billion decline in transaction banking revenues in the first half of the year, marking a seven-year low for this area of banking, finds a new report from analysis firm Coalition.
Reports Tuesday (Sept. 19) revealed news that global transaction banking revenues jumped 4 percent year over year, hitting $18.6 billion for the first half of the year. The Americas and Asia led the increase, which also enjoyed a spike thanks to cash management revenues, which saw $11 billion in revenues in H1, a 7 percent increase and a six-year high. Coalition analysts pointed to an increase in deposit productivity.
Citigroup, HSBC and JPMorgan led the transaction banking and cash management increases, researchers noted. But the drop in trade finance reflected a decline in commodities trade finance, with corporate customers reducing activity, especially in Asia, the report found.
Trade finance fund may be an answer as Fed, ECB prepare to unwind
As the US Federal Reserve (Fed) and the European Central Bank (ECB) prepare to unwind their easy money policy, which was in place since the financial crisis almost a decade ago, funds which are into trade finance among others may benefit.
With a rebound expected in global trade, and as banks become vary to finance companies in need of working capital, alternative sources like trade finance funds are gaining prominence even as analysts are expecting turbulent times in stock markets, which have been hitting record highs amid growing risks including geopolitical tensions and rising global debt.
“It’s a [Trade Finance] fund that will benefit from rising rates. In a rising rate scenario, equities and bonds take a beating, and this [trade finance] is an investment in the real economy,” said Doug Bitcon, head of credit strategies at Rasmala.
ABN Amro implements CBA trade finance front-end across global operations
Norwegian software vendor Commercial Banking Applications (CBA), today announced that ABN AMRO will be implementing the new IBAS Customer Front-End System for Trade Finance across its global operations as part of a project to offer additional functionality to customers, increase efficiency and reduce total cost of ownership.
The new IBAS front-end interfaces seamlessly with CBA’s IBAS Global Trade Finance Factory (IBAS GTF) mid- and back office solution. IBAS GTF is already being used by ABN AMRO to manage its trade finance operations across Europe, Asia Pacific and North America. The bank expects to put the new IBAS front-end into production in Q4 2017, replacing Surecomp’s allNETT solution in the Netherlands and manual processes elsewhere.
Trade finance revenues hit seven-year low
Global trade finance revenues reached their lowest level in seven years, with a 5% decline year-on-year for the first half of 2017.
Total trade finance revenues for the ten largest global transaction banks (Bank of America Merrill Lynch, Barclays, BNP Paribas, CITI, Deutsche Bank, HSBC, JP Morgan, Société Générale, Standard Chartered and Wells Fargo) fell to US$2.8bn compared to US$2.9bn in the same period last year, according to the latest report by analytics company Coalition, which monitors bank activity.
Trade finance revenues comprise of traditional trade finance such as LCs as well as structured trade finance products. Structured trade finance revenue declined significantly, driven by reduced commodity trade finance activity across all regions, Coalition’s research director Eric Li tells GTR.
DIGITALISATION AND TRADE FINANCE: WHAT’S NEXT?
Globalisation and the proliferation of technology have transformed the business world as we know it. But digitalisation is a priority for one industry in particular: trade finance. Greater use of technology could bring numerous benefits to the industry and even help plug the trade-finance financing gap—estimated at US$1.6 trillion by the Asian Development Bank (ADB).
As the ICC (International Chamber of Commerce) Banking Commission’s latest Global Survey on Trade Finance highlights, however, this is also a sector that has yet to fully realise the benefits of new technology. Fortunately, there is plenty that can be done to accelerate the digitalisation of the industry.
AfDB, UBAF to Co-Sponsor Seminar on International Trade Finance
The African Development Bank (AfDB), in partnership with the Union de Banques Arabes et Françaises (UBAF), will co-sponsor a seminar on international trade finance in Abidjan, Côte d’Ivoire, from 3 – 5 October 2017.
Representatives of banking institutions from Côte d’Ivoire, Mali, Benin, Burkina Faso, Guinea, Togo, Senegal, Chad, Gabon and Niger will take part in this event, with the goal of improving their professional practice in international trade finance. Issues related to specific foreign trade financial products and the risks associated with managing these operations will be addressed.
This seminar will enable participants master trade finance issues, particularly documentary credit and standby letters of credit. It will also provide information on issues involved and characteristics of various trade finance products, including credit risk, conformity, communication and tools through practical case studies of traditional and structured transactions for commodities financing.
Commerzbank names Asia trade finance head
Deepan Dagur has been named head of trade finance and cash management, Asia, at Comerzbank.
Dagur is based in Singapore, reporting to Nick Johnson, regional board member for Asia, and March Kirchhoff, global head of trade finance and cash management.
He replaces Brigitte Volz, who took over a new role in the operational development group. He joins from ANZ, where he spent five years in various senior transaction banking roles. He previously worked with Standard Chartered, consultancy Bain and Company, investment bank Salomon Smith Barney and UBS Warburg.
$1.5 Trillion Trade Finance Gap Persists Despite Fintech Breakthroughs
Businesses of all sizes continue to struggle to access sufficient credit, resulting in a global trade finance gap of $1.5 trillion in 2016, according to an Asian Development Bank (ADB) Brief released on September 5. Developing Asia’s share of the trade finance gap was 40% of the global total.
In its fifth annual study, 2017 Trade Finance Gaps, Growth, and Jobs Survey, ADB quantifies market gaps for trade finance and explores their impact on growth and jobs through a survey of over 515 banks and 1,336 firms from 103 countries. While the global trade finance gap stabilized in 2016 compared to the 2015 record high of $1.6 trillion, it still translated to missed growth opportunities and job creation.
“A sizeable trade finance gap is a drag on trade, growth, and job creation,” said Steven Beck, Head of Trade Finance at ADB. “We hope the results of the survey will encourage private and public sectors to ramp up collaborative efforts to improve businesses’ access to trade finance. Our Trade Finance Program (TFP) is here to assist and address these market gaps.”
THE TRADE FINANCE GAP STANDS AT U$1.5 TRILLION. WHAT CAN CFOS DO?
What is happening to global trade?
There are three forces driving the US$1.5 trillion trade finance gap:
- High number of rejected trade finance applications from the Asia Pacific (APAC) region
- High rejection rate of applications from SMEs and midcap organizations
- Reduced lending by banks to SMEs due to perceived risk (Know-Your-Customer issues) and declining profitability in trade financing
Taking a deeper dive into the trade-finance shortfall, the ADB report says Asia and Pacific are continuing to drive this gap. The general lack of trade finance provision is due to a high number of rejected applications – against the backdrop of the largest number of proposals/requests made for trade finance (see chart below).
It’s likely to be the perceived risk of emerging market financing that is driving this shortfall.
Adam Smith Associates offers trade & commodity finance related services & solutions to its domestic and international clients. Above news update and trends are sourced from internet and are purely meant for reading on the related subject and for information. Adam Smith Associate is not responsible for any of the content and nor it is meant for any commercial benefits