Targeted Trade Finance to be the Norm for 2015

A lot of banks adopted a supermarket-style approach in the past, offering a lot of different products. With regulation raising the cost of business, we have to concentrate on what we are really good at and how we can serve clients best.

Supply chain finance (SCF) will continue to grow next year. It is revolutionising how companies buy and sell, but its potential has not yet been fully realised.  Mature industries with highly integrated supply chains such as retailers, car manufacturers and pharmaceutical companies will lead the developed markets’ charge for more cross-border SCF. In the emerging world, demand will continue to be driven by suppliers’ need for more liquidity.

2015 could also be the year trade financing takes off digitally and becomes quicker, cheaper and easier for all involved. It still needs a critical mass of support though.

Take-up of the tools available – like bank payment obligations and the MT798 standard – is still too slow. Most of the relevant trade finance documents remain predominantly paper-based despite trade routes and supply chains becoming more complicated. For the digital revolution to really kick in, all participants must radically change their view of the world.

A big regulatory change for trade finance next year is the UK Prudential Regulatory Authority’s Consultation Paper CP12/14. This proposes a move of capital models behind financial institutions’ (FI) exposures to a foundation approach (i.e., a way of calculating exposure risk in line with Basel III). It was initially expected to happen in the middle of next year but is now more likely to come at the end.

This presents a big opportunity for clients as it levels the playing field around competition and pricing in the FI risk space. It means the main area of differentiation between banks will be service.

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