Asian trade finance remains a buyers’ market, with companies able to secure rock-bottom pricing from a host of banks fighting fiercely to win their business according to research by Greenwich Associates.
Yet the same competitiveness could eventually upset this favourable situation for corporates suggests the market intelligence specialist, which says that it is picking up the first signs of market participants settling into a new equilibrium.
From companies’ perspective, the commoditisation of trade finance has reduced differences among providers. This evolution enables companies to easily shop among providers for the best price and has provided opportunities for Japanese banks, regional Asian banks and even local country providers to compete for new corporate relationships with aggressive pricing.
Throughout the region, global banks are concentrating on key clients and are also searching the ranks of Asia’s biggest companies for prospects whose needs go beyond ‘plain vanilla’ letters of credit (LoCs) and guarantees and into functions like supply-chain management and working capital management that are more complex, sticky and profitable.
As they make these changes, global banks are taking a hard look at the very notion of cross-selling. “Banks will be testing the theory that providing plain vanilla trade finance business creates opportunities to win higher margin business,” says Greenwich Associates managing director Paul Tan.
“Global banks will be auditing relationships on a case-by-case basis, assessing both the return on capital (ROC) as well as the linkage between lending and other parts of the wallet served. The new normal is equally being defined by other banks, which differ on their hurdle rates, Basel III timeframe and their eagerness to acquire large corporate clients.”
The firm adds that retrenchment on the part of global banks has not yet been enough to offset the continued influx of capital into the trade finance business from banks eager to get their feet in the door with large Asian companies.
Banks with pan-Asia regional aspirations, local-country Asian providers and Japanese banks all see trade finance as a point of entry into corporate relationships that they hope will pay off with more lucrative business later.
“These banks are moving to capitalise on the pullback of their global competitors, thus taking up any slack in the market and keeping pricing low for companies – at least for now,” says Greenwich Associates consultant Gaurav Arora.
Despite these still-emerging changes in the competitive landscape, the names at the top of the Asian trade finance market in 2016 remain familiar, reports Greenwich. HSBC leads, with 41% of large Asian companies citing the bank as a trade finance provider, followed by Standard Chartered at 29%, Citi (26%) and DBS (22%).
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