Trade Finance ‘Back in Fashion’ for Asian Businesses

Trade finance, an old-style financial product, is very much back in fashion across Asia as the region’s businesses trade more across borders and around the world, reports East & Partners Asia.

Although the banking market research firm recently reported that some banks were failing corporate clients in granting the necessary
credit approval for trade finance
it says that the sector is responding to growing demand for funding these trade flows.

East comments that for the regional banks, it is increasingly important to have a significant trade finance function. Happy trade finance customers are much less likely to take their business elsewhere, and the trade relationship can be the bedrock of cross-selling other products. It is also, relatively Basel III and capital friendly.

The firm’s analysis shows that $1 in trade finance fee income can bring in an additional $1.70 in foreign exchange (FX) and cross border payment fees and a further $2.25 in other transactional banking revenue for providers if executed well.

East has launched its inaugural
‘Asian Trade Finance (ATF) report’
, which details the trade finance needs and behaviours of Asia’s Top 1000 corporates excluding Japan.

The report finds that certain banks are using their trade business as something of a ‘Trojan horse’ to penetrate the Asian region. Knowing that trade is a ‘sticky’ product offering cross selling opportunities, some new entrants to Asia are focusing on trade as their way into the region, and as a strategy to sell other non-trade services to their clients.

A comparison between primary transaction banking and primary trade finance market share reveals that some banks with entrenched transaction banking market share are having their trade finance market share eroded by poaching from newer entrants.

Australia’s ANZ, for example, has modest, albeit growing transaction banking market share but is building a presence in trade finance, both in terms of primary and secondary relationships. Another major regional bank, with very healthy transaction banking market share, has a primary trade finance market share around half of its transaction banking share.

East adds that the report also offers some clues as to how ANZ has managed this. Trade finance customers are asked to rate their satisfaction levels with providers across various attributes, and while ANZ is mid to low ranking in most of them, it is ranked first for competitive pricing and value for money.

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