Trade Trends in Asia
Manfred Schmoelz,
Head of Transaction Services, Asia-Pacific, RBS
Despite some signs of a slowdown during 2012, Asia remains the fastest-
growing economic region in the world and continues to offer major opportunities
for trade. While eurozone troubles and wider-reaching austerity programmes
have constrained external demand for Asian goods, this has been balanced
by stronger domestic demand and growing intra-Asian trade. Caution remains
the watchword, however, and corporates are therefore looking to their trade
finance and cash management processes to achieve the combination of working
capital optimisation, efficiency improvement and risk reduction necessary to
successfully navigate uncertain markets.
Intra-Asian trade
While the percentage of Asia’s exports
destined for the US has been declining,
the proportion destined for other Asian
countries has been rising – a trend that
looks set to continue as China opens its
doors more widely, particularly to cross-
border, RMB-denominated trade. Given
the preference of many Asian companies
for letters of credit (LCs) over open
account trading, the demand for trade
finance is likely to grow. More intra-Asian
trade also means that a greater number of
smaller businesses are now exporting and
importing within the region and, as such
companies are more likely to use LCs to
manage risk, this will also drive demand
for trade finance. As smaller companies
may not have the in-house resources
to manage the administrative and
legal aspects of the LC process, this is
creating opportunities for banks and other
providers which can offer value-added,
integrated services such as document
preparation (DocPrep).
The trend away from open account
trading towards the use of traditional
trade products was first noticed in the
aftermath of the global financial crisis, but
few thought that their renewed popularity
would be so long-lasting. Although Asia
quickly bounced back from the credit
crisis, regulatory changes and continued
economic uncertainty mean that the
availability and cost of credit is an ongoing
issue for many traders. In this environment,
LCs offer buyers and sellers the liquidity
and security they need, while also meeting
lenders’ capital requirements. So, with
the current spotlight on risk management
unlikely to fade, the greater use of LCs
as a trade instrument – particularly for
refinancing – is set to continue.New technology platforms
The downside of traditional trade
products such as LCs is that they are
time-intensive, and can be subject to
human error. The need to eliminate those
disadvantages lies behind another trend –
automation – as trade finance instruments
are increasingly adapted to the digital age.
The industry move from paper-based to
digital products is also likely to realise a
number of other benefits for corporates,
making the process not only quicker
but more efficient and less risky. As the
regulatory and risk environment tightens,