HSBC, Deutsche Bank and BNP Paribas are the leading providers in European corporate trade finance – a traditionally stable business now showing signs of change according to the results of a Greenwich Associates report.
The US consulting firm adds that over the past two years the results of its research have pointed to an interesting shift, with some European companies changing the way they use trade finance.
Historically, companies in Europe and most developed markets have used trade finance products and services mainly as tools for mitigating counterparty risk. However, companies in parts of Europe have begun to use trade finance more often as a source of credit. This practice strongly resembles corporate behaviour in Asia, where companies routinely employ trade finance as a core source of credit.
“Some companies in Greece, Italy, Spain and other European companies have found their access to traditional bank credit severely constrained,” said Greenwich Associates consultant Robert Statius-Muller. “When access to other sources of credit is limited, trade finance can serve as an important alternative.”
The market for European trade finance is dominated by three banks with global reach. HSBC, Deutsche Bank and BNP Paribas are each used as a provider by roughly a quarter of large European companies that employ trade finance products and services. Behind these evenly matched leaders is another group of three competitors of a much different nature.
Whereas the top trio has built its position on broad networks spanning most, if not all, of the European countries, the next three banks owe their rankings largely to their strength in their home markets or regions. UniCredit, Commerzbank and Nordea are all providers to 17-18% of large corporate trade finance user in Europe, with most of that business originating from companies in Italy, Germany and the Nordics, respectively. Together, these six banks are the 2013 Greenwich Share Leaders in European Large Corporate Trade Finance.
The firm notes that each bank has pan-European and regional reach. Deutsche Bank is rated as the quality leader in its domestic German market, and provides reliable service across the rest of the continent. BNP receives high ratings for quality across Europe, with the strongest scores coming from companies in France and the Benelux countries.
HSBC is used as a provider by 54% of large U.K. corporate trade finance users, placing the bank squarely at the top of this market. Next is Royal Bank of Scotland (RBS), with a market penetration of 34%, followed by Lloyds at 30%.
These providers also receive the market’s top scores for quality. As a result, these three banks share the titles of 2013 Share and Quality Leaders for Large Corporate Trade Finance in the UK
In Germany, Commerzbank and Deutsche Bank are tied at the top of the trade finance market with penetration scores of 81%. Next is UniCredit at 55%. These three banks are the 2013 Greenwich Share Leaders in Large Corporate Trade Finance in Germany. The 2013 Greenwich Quality Leader for Trade Finance in Germany is Deutsche Bank.
Approximately 73% of large corporate trade finance users in the Nordics use Nordea as a provider, making the bank far and away the leader in this market. Danske is second at a ‘distant but still impressive’ 42%, followed by SEB at 30%. These banks are the 2013 Greenwich Share Leaders for Trade Finance in the Nordics. Danske and Nordea share the leadership for the 2013 Greenwich Quality Leader Award in the Nordics.
The firm reports that competition among trade finance providers has intensified since the announcement of new bank capital rules under Basel III, which make trade finance margins look increasingly attractive relative to those in businesses hit with higher capital charges. However, there still remains a strong link between corporate lending and transaction banking, and companies still award disproportionate amounts of cash management business to key credit providers.
That is especially the case in the more routine, less sophisticated parts of the business that still generate the bulk of volumes. “For that reason, we expect national banks that have maintained long-standing lending relationships with companies in their domestic markets to maintain their franchises in trade finance — or at least in domestic trade finance,” said Greenwich Associates consultant Dr Tobias Miarka.
Even so, large global banks continue to gain advantages over smaller rivals with more limited reach. Some trade finance business has begun to consolidate in the hands of large providers for several reasons, including these banks’ stronger balance sheets, broader global reach, sophisticated IT platforms and integrated services.
The US money market fund reforms came into effect in 2016 and are already dramatically shaping US fund industry with investors flooding out of prime funds and into government securities. While the reforms are similar, they are not the same. GTNews interviews Yeng Bulter, global head of the cash business at State Street Global Advisors on the differences.
The top five sectors Asian fintech investors are interested in are data analytics, blockchain, lending, payments and regtech, according to Gary Hwa, EY regional managing partner.
On the third day of the Singapore Fintech Festival conference, there was a focus on specific applications of fintech innovation. One was trade finance, which is clearly is ripe for a revolution.
Kicking off day two of the Singapore Fintech Festival, Deloitte Chairman David Cruikshank said that fintech is significant for three reasons. First, customer expectations of services are higher than ever. Second, barriers to entry are lower than before. And finally, financial institutions (FIs) face a threat of what a competitor might do.