A Global View on Trade Finance
(AE). Intra-EM trade is expected to grow
from 13% to 38% of the total, while intra-
AE drops from 43% to 15%. The shift of
world trade from AEs to EMs will also likely
manifest itself in a large regional shift in the
composition of trade.The prospects of emerging Asia stand out,
with trade expected to grow by more than
10% per annum on average over the next
decade, before falling rather quickly to
around half that level. Other EM regions are
expected to experience high growth in trade,
propelled, notably in the case of the Middle
East and Latin America, by growing trade
relationships with EM Asia. Although trade
growth in the AE world is likely to be more
modest, expectation is that it will exceed AE
GDP growth.A changing landscape
The global trade finance market is worth
approximately USD 10 trillion a year, and,
according to WTO research, about 80–90%
of world trade still relies on some form of
trade finance. The market is changing,
however, with a number of factors creating
challenges and opportunities.
As large banks tighten lending standards,
and some traditionally strong European
banks decrease their trade finance
exposure, room is being created for global
competitors with fewer balance sheet
constraints. For all banks, however, stricter
regulatory requirements (Basel II and III) will
increase the capital costs for trade finance,
and threaten profitability.While banks’ ability to provide trade
finance comes under pressure, demand
is rising. Currently, approximately 75% of
trade transactions are carried out on open
account and only 25% are transacted as
documentary trade, but the increased
risk environment continues to drive a shift
towards documentary trade. It is estimated
that traditional trade services are growing at
approximately 5% per annum.
Other factors are driving demand for
trade finance. These include the expecteddemand from emerging economies for the
commodities and infrastructure they need to
facilitate further economic development. The
growth in trade routes between emerging
economies is another factor, particularly
as many companies in these regions still
rely on documentary trade finance. For the
largest companies, however, the focus is on
the increased integration of global supply
chains. There is also a renewed interest in
the fundamentals of cash management, and
supply chain finance is extending to include
more integrated services.Banks rise to the challenge
In the face of this changing landscape, banks
are developing innovative solutions, often in
response to new regulations, technological
advances or a deeper understanding of
market and customer needs.Bank Payment Obligations (BPO) are
one such example, which will target open
account trade business by facilitating a more
efficient, lower-priced solution with greater
visibility. Online channels and applications
will enable banks to meet the increasing
demand for faster transactions and greater
visibility at all stages of the trade cycle.
Platform and e-invoicing solutions for
corporates, including low-price platform
renting and cloud-based e-invoicing, are
another key area of innovation.
Managing risk and streamlining trade
processes are key priorities for corporates.
At RBS we have helped a number of clients
to centralise their issuance of guarantees
at parent level, allowing better control over
subsidiaries’ activities and easier reporting.
We have seen a significant increase in the
uptake of supply chain receivables solutions,
which are being used by buyers with strong
credit ratings to help their suppliers secure
better credit terms. These solutions enable
buyers to strengthen their supply chain and
minimise working capital needs; and as the
RMB internationalisation programme gathers
speed, we have also seen increasing
demand for RMB-denominated export letters
of credit and settlement.