Amongst all the doom and gloom about trade wars, protectionism and economic uncertainty over the past 12 months, Trade Finance Global (TFG) spoke to leaders in trade about the positive news stories and things to look forward to in 2019.
Pledges to fully digitalise Trade Finance
Enno-Berghard Weitzel at Commerzbank AG said: “Commerzbank has pledged €700m of investments in digitalisation and IT per year with the aim of digitalising 80% of relevant processes by the end of 2020 – effectively evolving into a digital enterprise.”
There are a number of projects across numerous banks and fintechs to apply distributed ledger technologies from proof-of-concept tests to pilot phase in 2019. The trade sector is earmarked for significant disruption due to advances in technology, client appetite to digitize supply chains as well as new big data applications across supply chain finance. Investment into new technologies to enhance efficiencies is key for many banks in 2019.
Pravin Advani, Managing Director & Global Head of Global Trade & Loan Products, J.P. Morgan said: “a key area for us is in technology – our firm-wide technology budget is estimated to be over US$11 billion this year, of which US$5 billion is set aside for new investments. The trade industry is set for disruption in the coming years due to rapidly evolving technology and we are committed to helping our clients succeed in their digitalization journey.
“This includes streamlining the supplier on-boarding process for our supply chain finance (SCF) program by providing a self-service online suppliers’ enrolment functionality.” he added.
Facing Brexit head on
For many trading companies, dealing with the complexity of a potential no-deal Brexit is key – with regards to import tariffs, mitigating currency risk and understanding the new trading relationships with European counterparts, who are often embedded in global supply chains. Many leaders are tackling these issues head-on, providing clarity to businesses at a time of uncertainty. Whilst delivering on the UK’s departure from the EU, it’s critical to ensure that businesses both maintain and grow their trading relationships as a whole, and many bodies, associations and credit agencies are leading the way in this.
Liam Fox, Secretary of State for International Trade and President of the Board of Trade, said: “Since 1919, UKEF has been helping British exporters achieve international success, a game-changer for UK businesses. That’s why we’ve put its support at the heart of the UK Government’s Export Strategy as we work to increase exports to 35% of GDP.”
Lesley Batchelor OBE, Director General at the Institute of Export & International Trade said: “The Institute is ramping up its training offering to businesses to help them to prepare for Brexit. Many of our courses around customs procedures are fundable by new government grants and we are also training many of the employees at HMRC who will be on the frontline of dealing with the UK’s departure from the EU.
“We are expanding our training and consultancy services to include AEO and further Brexit support, as well as providing a new ‘Customs Pathway’ through our courses towards a ‘Customs Practitioner Award’” she added.
Regulatory landscape makes trade finance hard
The regulatory landscape for trade is constantly changing. Financial regulations often fail to reward financers in their conduct of well-structured trade finance transactions. During 2019, many leaders will be looking to work closely with regulators to make it appealing to continue financing trade.
Geoffrey Wynne, Partner and Head of the Trade & Export Finance Group at Sullivan & Worcester’s London office comments: “This [regulatory treatment] makes it potentially too capital intensive for banks who are likely to do less trade finance. This is the case even where the potential for trade finance is growing if trade increases. This leaves a large financing gap. The gap cannot be filled just by funds and non bank financers. The upshot is potentially less trade finance overall.
“Our team advised BAFT on its updated English law Master Participation Agreement (MPA) and associated usage guidelines. The MPA, drafted more than 10 years ago and updated for the first time this year, serves as the industry standard for secondary market transactions to facilitate the buying and selling of trade finance-related assets globally” he added.
David Campbell, Partner at Allen & Overy said: “The current geopolitical climate and increased enforcement risk means that regulation of trade and sanctions are hot topics for our clients at the moment. This is an evolving subject and we are seeing changes in sanctions provisions in financing documentation in response to the macro environmental developments.”
Bridging the trade finance gap
Studies by ICC Banking Commission and the Asian Development Bank highlight the trade finance gap, which lies at around USD 1.6 trillion per year globally. SMEs and developing economies are most adversely impacted by this gap, which impedes our ability to achieve the UN Sustainable Development Goals unless it is reduced significantly. Challenger banks and non-bank financiers continue to find innovative ways to close the gap.
Kerstin C. Braun, PhD, President, Stenn Group said: “In 2018 alone, we quadrupled in size. As we consistently brainstorm innovative ways to fund the $1.5 trillion gap of global trade, we realized we needed extensive expertise. So in 2018, we hired top notch talent to our company. By the end of 2018, our portfolio of countries that we work with reached 70 countries. I’m proud that we can allow suppliers and buyers in even more countries to access our solutions. Moving forward, we aim to work with 120 countries, which is 60% of all countries on this planet and over 90% of the global GDP.”
Trade Finance Global (TFG) recognised organisations at the International Trade Finance Awards – which companies made exceptional headway in 2018, facilitating trade, cross-border finance and the digitalisation of international trade. A full list of the winning companies with their interviews can be found here.
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