Australian Corporates Target China as Trade Finance Transforms

As Australian corporates step up their push into offshore markets, supporting their trade finance needs has never been more important, according to research by banking analysts East & Partners (E&P).

Rising regional trade flows have placed key export and import destinations, supply chain management initiatives, electronic trade (e-trade) solutions and payment efficiency firmly in the spotlight.

“Through the application of technology, trade finance is moving away from traditional letters of credit (LCs) and standalone buyer and seller relationships towards faster, more efficient payment platforms and services” said E&P head of markets analysis, Martin Smith.

“Documentation outsourcing, open account financing and even bank payment obligation (BPO) usage is driven by customer’s stated need for a broader business banking relationship, incorporating the full range of transactional and business FX functions.”

National survey results from 1,849 actively importing and exporting enterprises in Australia for E&P’s trade finance programme displays which banks are securing more trade customers, increasing wallet share and winning the race to be ‘front of mind’. The programme also tracks revenue pools and fluctuating trade profiles of Australian enterprises.

E&P estimates export trade loan revenue declined from A$6,964m in 2012 to A$6,043m in 2014, with fees and transaction charges steadying at A$378m per annum. The number of dedicated ‘export only’ enterprises has correspondingly declined since 2009, yet the first hint of a turnaround has emerged with a break in the downward trend.

In 2009, one in two Australian chief financial officers (CFOs) in the institutional segment identified their business as both importing and exporting goods and services. The remaining half split evenly across ‘importers only’ (25.5%) and ‘exporters only’ (25.2%).

The proportion of the Top 500 Australian enterprises by revenue that both import and export remained close to 50% since 2009 yet the number of ‘export only’ firms steadily fell to a low of 16.9% in 2014. As of 2015, a marginally higher 17.2% of the institutional segment ‘exports only’ against 35.7% who ‘import only’.

The percentage of ‘export only’ corporates and small to medium enterprises (SMEs) has more than halved over the same time period.

“China is now the key export and import destination for [Australian] businesses of all sizes, outranking New Zealand, the US and India. Businesses continue to turn to friends or colleagues for trade finance advice in the absence of a knowledgeable trade account officer,” said Smith.

“Given major barriers to accessing or growing offshore demand such as the high Australian dollar [AUD] and trade restrictions are quickly subsiding, the positive upswing in ‘export only’ trade orientation will no doubt result in greater competitor pitching which is already at an elevated level.”

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