The post-global credit crisis environment in Turkey is one of great adjustment. Following the difficulties presented by the financial turmoil, local corporates feel that many of the global banks have all but disappeared from the local market. As a result of this retrenchment, the level of the banks’ service provision has decreased dramatically, which is of particular concern in a market in which mid-sized domestic corporates are increasingly operating on an international level.
Although domestic developments in cross-border transaction banking have greatly improved since its arrival five to seven years ago (following a surge of local/international bank mergers), there is still some way to go if local banks are to keep up with corporates’ ever-increasing demands. These demands reflect the treasury department’s expanding role.
Today’s corporate treasury is increasingly expected to function as a strategic tool to improve the bottom line, as well as solve daily cash management challenges, improve internal data control and undertake staff and expenses reductions. The majority of local banks are able to offer elements of integrated cash management and trade finance services, which has resulted in some positive efficiency gains at local level. In light of corporates’ increasing demands for international reach and access to global-standard transaction processing capabilities, it is questionable, however, whether these domestic efficiency gains are enough.
Looking Closer to Home
Speaking at BNY Mellon’s recent roundtable event in Istanbul, local bankers admitted that they are struggling to meet the demands and requirements of the increasingly global nature of their corporate clients’ business. The current chief concerns of Turkish corporates are global reach, global understanding and the ability to ensure that cash can be used effectively and efficiently worldwide, despite trade and/or tax restrictions. As this comes at a time when many of the global players have retrenched, the pressure is on local banks to assume a combined local/global role.
“The major problem of the compatibility of the two functions is that cash management usually requires local knowledge and expertise, whereas trade finance is led by global rules,” said H. Korhan Colakli of IS Bank, speaking at the roundtable. “This means that you have to be a global player, and it’s very difficult to fully play the parts of local bank and global player simultaneously.” This is particularly the case when local banks find that their corporate clients’ business extends to unfamiliar territories. Indeed, Mehmet Tugal, corporate branch manager at Akbank, concedes that lack of global knowledge and understanding is the chief problem that local banks face when it comes to meeting client demands. “More and more of our customers are doing business in the Middle Eastern markets, but our knowledge of these markets is limited,” he said. “Consequently, our risk appetite is restricted.”
Of course, trade finance goes beyond global knowledge and reach, and also requires technological expertise. Turkish corporates increasingly require more from their transaction banking solutions. Enhanced risk mitigation, greater access to bank-supplied credit lines, global-standard processing systems and international reach constitute some of the current corporate demands, which – crucially – they want met at the local level. If local banks are to maintain and develop their corporate relationships, as well as remain relevant to international trade, they must find a way to deliver such value locally. While outsourcing these services to a global provider would seem to be the obvious solution to this dilemma, the inherent dangers and disadvantages of most outsourcing offerings means that it may not, in fact, provide local banks with what they looking for.
Local banks need and want ways to address the needs of their local markets, but such offerings rarely cater for specific market concerns. Indeed, outsourcing frequently shoehorns local banks into a ‘one-size-fits-all’ system designed for the needs of the international market. This often leaves local banks with little or no flexibility to compete in their domestic markets or address the real and evolving local concerns. Local banks need the ability and agility to provide their corporate clients with an international-standard processing service and dispense global knowledge in their home markets – so this is what a partnership with a global bank must provide. A collaborative partnership based on the manufacturer/distributor model could allow local banks to develop these capabilities.
Manufacturers and Distributors
Under this model, specialist global providers act as ‘manufacturers’ of transaction banking services and products, and local banks fulfil the role of ‘distributors’ of these services and products to their local client base. Far from being at a disadvantage, the distributors’ strength lies in the sound knowledge and understanding they have of their domestic markets and their strong ties with the local corporates. Certainly, the benefits of this approach stem from its focus on the individual core strengths and capabilities of both local and global banks. Local banks have the necessary client relationships, local expertise and risk management and assessment capabilities, while international banks are better positioned to provide the global reach and infrastructure.
This combination could result in local dynamism, understanding and commitment, tied into a global range and standard of working capital technology, with international reach. In short, exactly the sort of leverage they need to keep pace with the increasing demands of their corporate clients for greater international reach and processing efficiency, while retaining core competencies and generating cost efficiencies. “Looking to the future from a local bank perspective, collaboration of this nature could allow local banks to capture global flows,” says Eylem Ekmekci, head of trade finance at YapiKredi. “They could also retain and expand existing business, as well as penetrate previously inaccessible corporates.”
Europe’s opening banking regulation is finally here. After months of preparation across the continent, the Revised Payment Services Directive comes into effect on January 13.
The revised Payment Services Directive regulation, regarded as one of the most disruptive in Europe’s financial services sector, will begin to make an impact on January 13, 2018.
The cost of compliance efforts for banks has increased exponentially in recent years. This is especially true for those banks that are active in the global trade finance domain, where the overwhelming expectation is for compliance requirements to become even more complex, strict and challenging over time.
This year promises to further the regulatory compliance burden imposed on financial institutions. How are firms in the sector responding to the challenge?