Chairman's Message

Paolo Provera on what Change will mean for the IFA and Trade and Finance

Dear Members and Friends,
As I write this today, we stand in the midst of change.

Change, not just for us at the IFA, but indeed right across the world as political events unfold that signal challenging days ahead for world trade and indeed for all of us in trade and forfaiting. 

Change that makes us at the IFA an even more meaningful and valuable organisation for all its members in the midst of current events.

Political events across the world, from Europe to Russia to the Middle East, are signalling that we may face continued uncertainty in the world of trade going forward. Who knows, they might even be signalling a new order in the coming years. As we wait for these to unfold and their consequences to be clearer and more decipherable than they are today, we need to be aware of what the change might mean.

At the IFA, we've recognised this and as a starting point we're presenting you, in this newsletter, with an interview with Per Fischer, Head of Financial Institutions covering CEE, CIS, Russia, Turkey, Baltics and Mongolia at Commerzbank.

And now about the IFA! As an organisation that exists and delivers value to its members we stand at a crucial juncture. We're committed to our fundamental objectives of delivering value, through knowledge, competence and networking and to do this we're taking several new steps. We're redefining our Mission to make ourselves the foremost source of value to our members and we're now embarking upon an ambitious round of restructuring our internal systems to truly deliver.

To do this we've appointed Teresa Casal as an Adviser & Special Projects. Teresa is currently finishing her Masters in Executive Coaching with an interest in Organisational Change, at Ashridge. She was formerly with Banif Bank, Standard Chartered, Standard Bank and Santander and is well-known to many of you. She will advise on our transition to make the IFA the most sought after body in Trade and Forfaiting.

The first step towards this is this newsletter which we now commit to bring out on a monthly basis. We're also revamping our website to make it an interactive platform that can deliver not just information but knowledge; not just names of members but true networking that can ease both deal making and career growth among our members. A date for the launch of this exciting web platform will be conveyed to you soon.

I am also excited by what is in store for all of us at the IFA in the coming weeks and months. We have the 41st Annual Conference in Barcelona coming up from the 10th-12th of September. Numbers are growing and we expect around 200 delegates. The focus as you all know is Africa – a most promising continent for trade and finance, especially forfaiting. We are delighted to welcome ATFA to our conference and hope that you will be able to join them at some of their events.

I am equally excited to announce the creation of a team led by Johanna Wissing (Barclays Bank), which will be presented at the Conference in Barcelona, formed by young people with the aim to bring youngsters into the next generation of trade and forfaiting. We think this is an important initiative and I know you will lend them all your support "The youngsters are coming!"

At the IFA, we plan to be at the forefront of the change; offering news, knowledge and insights drawn from across our wide and expert member-base, all of you, to deliver through our new platforms, the web and this newsletter.

Our success as an organisation can only come about if we all set about it together and co-operate to make our new platforms a success! Teresa, with some of the members of our Committee, will be in touch with all of you to see how you can contribute with knowledge and insight to deliver to our goals. She will also be at our conference in Barcelona, where I invite you all to interact with her and offer suggestions on how we can make the IFA your global organisation for Trade and Forfaiting.

See you in Barcelona in September!

Best wishes,
Paolo Provera,
Chairman

The Deputy Chairman's Message

Sean Edwards on Two New Regulatory Challenges

Nobody likes regulation. Full stop. End of. Bankers like the law a little bit more but not much. One of the jobs of the IFA is to help the market find its way through some of these issues. We have published market practice bulletins commenting on topical issues and giving guidance on difficult areas. We have not published any new bulletins for a while but we would like to hear from you with suggestions for fresh bulletins.


As we detail below, we are also taking the fight directly to the regulators. This is an area in which we must operate collaboratively with other associations. Just as importantly, we need input from all members as to where and what we should be pushing and lobbying on.

The financing of trade-related receivables – through forfaiting and other forms of supply chain finance – is a growth industry which we all want to be a success. The aim of the IFA is to help all of you achieve that success.

TWO REGULATORY CHALLENGES – A CALL TO ARMS!

Two regulatory issues which have been lurking in legislation on bank regulation and capital are starting to be felt by the forfaiting and wider trade finance community. In one case, the issue is an unintended consequence of rules designed for quite different purposes but which have, as has proved to be the case on more than one occasion, hurt the provision of trade finance. Your association is working to provide solutions for both these issues.

The first, which has already been the subject of consultation with the membership, regards the need to produce reasoned legal opinions on the effectiveness of credit risk protection under the European Capital Requirements Directive (commonly known as CRD IV) which implements the terms of Basel III into European law. Paragraph 194 of the associated regulations requires affected institutions to ensure that their credit mitigation techniques are "legally effective and enforceable in all relevant jurisdictions." Sub-participation agreements, in particular the BAFT form, are one such form of credit risk protection.

We are consequently looking to produce, possibly with BAFT itself, a market standard opinion to satisfy, so far as possible, this obligation and provide guidance on dealing with questions where this not possible. This opinion would be published on the IFA website for the benefit of all IFA members. Only IFA members will be able to rely on it.

The second issue originating in the United States but is very likely to have consequences for foreign banks directly and indirectly. Under the Dodd-Frank Act the wide definition of swap in the legislation had the potential to cover sub-participation agreements as well as classic swaps. Changes were made to ensure that funded sub-participation agreements would not be caught by the new provisions but those changes left the legal status of unfunded sub-participation unclear. Extension of Dodd-Frank to unfunded risk participation would result in the application of very onerous reporting and other requirements to these agreements which would make them impractical to use.

We are therefore looking to help BAFT in lobbying the US Government to produce clarity on this point. We urge members not yet engaged in lobbying on this point to contact their regulators and express their opinions.

INCREASING USE OF THE URF

Whilst off to a slow start, the popularity of the Uniform Rules for Forfaiting (URF) ICC Publication No. 800, is increasing with more transactions incorporating these rules and using the forms of optional model agreement attached to them.

Interest in the URF is especially notable in Asia one of the world’s largest forfaiting markets where the existence of an internationally recognised standard is appreciated in what is sometimes a fragmented market. Amongst other changes, the URF brings clarity to questions of recourse and examination of documentation.

All members have been sent a free copy of the rules. Further copies are available from the ICC Bookshop.

Happy forfaiting!

Have you confirmed your participation yet?

Our 41st International Forfaiting Conference

Dates: 10th-12th September, 2014

Venue: Barcelona, Hotel Rey Juan Carlos

To register for the conference (please copy paste the url in your browser): 

https://www.eiseverywhere.com/ehome/84379

You can also contact:

Faye Hamilton
Director

International Conference Solutions (Europe) Ltd

Tel: +44 7940 507 741

Email: fayeh@intl-solutions.com

www.intl-solutions.com

Other Industry Events

IFG 52nd Annual Meeting

Dates: 28 September – 1st October, 2014

http://www.ifgroup.com/events/annual-meeting/

ATFA Networking Seminar Cocktail

Date: October 21-14

Location: Bank of Montreal

Address: 100 King Street West, 68th Floor, Toronto

Contact: Genny Martinez-Campos

genny.atfa@gmail.com

Interview: Per Fischer on the Russia Conundrum

What the events in Russia mean for trade and finance

A key question today for bankers and the trade finance community is the impact of the sanctions on Russia and the unfolding economic dynamics from the political developments in the region. In a free-wheeling interview Teresa Casal and Vivek Y. Kelkar speak to Per Fischer, Head of Financial Institutions covering CEE, CIS, Russia, Turkey, Baltics and Mongolia at Commerzbank about what the developments might mean.

Q: With the recent events in Russia and Ukraine what are people are looking for in Central and Eastern Europe and Russia? What is happening with liquidity? Is there a retrenchment of lines, a change in the price perception of the risk, etc?

Per: Let’s look at the region overall. The Russian economy had deteriorated already at the end of last year. The overall growth in the Russian economy was only about 1.3%. This is much too low for an economy that is developing or emerging. Russia also saw capital flight towards the end of 2013 and we’ve also seen a downgrading by at least one rating agency. Many Russian corporates have had already some problems in tapping the capital markets for refinancing. All this was before the sanctions were imposed in April 2014.

So we’ve seen that many banks had already either raised their pricing for Russian risk or in some cases had even decreased their lines. This trend has only been accelerated by the sanctions. The preparedness of banks to take Russian risk decreased even before the sanctions and it is much lower today.

The other countries in Central and Eastern Europe have had a continuing growth path and have so far not been affected by the sanctions on Russia. Poland is doing quite well; the Czech Republic is doing quite well, as indeed are Hungary and some of the Balkans. Most of these countries have their trade with Western Europe and in particular with Germany and benefit from the robust German economic performance.

Further east, however, we might see many countries that will be negatively impacted by the Russian issue both politically and economically. Of course, those that produce oil and gas are much less dependent on Russia and will continue with moderate growth. But everything is very volatile. If harsher sanctions are decided, economies in western and eastern Europe would suffer.

Q: How severe is the problem for the Russian corporates? How is the Russian banking sector poised?

Per: All the big Russian corporates, including Gazprom and others from the commodities sector, were very active in placing bonds abroad, in issuing syndicated loans and tapping the capital markets. But from April-May 2014 these markets have been more or less closed for Russian corporates and many of them have lost access to the capital markets. Western banks in many cases are not prepared to issue bonds or refinance bonds or loans. This is putting pressure on the Russian corporate sector.

The question, therefore, is will the Russian banks be able to raise funds on the capital markets now? I doubt it. With the sanctions coming in even the Russian banking sector is going to be affected, especially for refinancing purposes.

Q: How do you think the smaller Russian banks will fare?

Per: Overall, of course, they will also be hit by the deteriorating Russian economic situation. This affects the whole economy. Russia has about 900 banks. The Russian Central Bank has been trying to consolidate the Russian banking sector by minimising the number of banks.

If the sanctions hit mostly the state owned banking sector then non state owned banks will maybe benefit gradually. There is, however, no doubt that that the whole Russian banking system is suffering already by the deteriorating economic situation and the sanctions. Small and very small banks with no international business might be less or later affected.

Most significantly, the EBRD is considering cancelling their Trade Financing Programme to Russian banks. This TFP programme is very important to a lot of smaller banks for their international business. If the EBRD programme is cancelled the cost may be high.

Q: The EBRD cancellation is a very serious issue. Would other commercial banks follow suit? Or is there an opportunity for commercial banks to enter some of that business? Would the sanctions affect that opportunity?

Per: It is indeed very serious because others might follow suit given the Russian political situation. This trade facilitation programme gives smaller banks access to trade financing, especially in cases where there is little or no credit history and the risk is perceived as very high. The onus of volume that was channeled through the TFP programme will now fall on the commercial banks and they might not be in a position to bear it.

Each bank will certainly make its own analysis. Those that are focused and strong on trade finance may not immediately withdraw their short-term lines, sanctions permitting. The general appetite today for Russian risk is not bullish. It will be difficult to make an opportunistic move and now to enter business that others have exited.

Q: How is the Russian central bank reacting?

Per: The Central Bank has clearly shown that it has two priorities. One, it is committed to consolidating the banking system. So rules have been eased to enable bank mergers or raise equity.

Two, the Central Bank is focused on making the banking system Basle III compliant. It has taken several positive steps. For instance, subordinated loans that were granted to state-owned banks during the crisis days of 2008-09 have now been changed or swapped into first rank capital. That has helped some of the state owned banks raise their capital adequacy ratio. This will help Russian corporate clients turn to these state-owned banks to get the refinancing that they may lose from the capital markets. The overall demand for credit from the Russian corporates to the state owned banks has already significantly increased.

Q: How much pressure will the additional demand for credit put on the state-owned banks. Is their capital adequacy ratio healthy enough to take that pressure?

Per: We have to remember that more Russian banks may be hit by the sanctions. The Russian Central Bank will have to formulate a clear strategy to deal with the situation. By raising the capital adequacy ratios, the Central Bank has already to some extent taken mitigating steps.

The other important point is that the Russian central bank is working extensively to strengthen and improve compliance mechanisms, setting up structures, etc. to improve the Russian banking system.

Q: How do you see Russia going forward?

Per: Don’t forget that Russia has the fourth biggest currency reserves in the world so they can weather some economic problems as they did in 2008-09. I expect that the Russians will come up with some counter-measures. But everything will depend upon what sanctions might come in the future and the degree of the sanctions.

Q: Beyond Russia, what will be the impact on other countries in the region especially Ukraine?

Per: Ukraine plays a much smaller role in the region’s trade. But Ukraine for a number of years has faced a difficult banking situation; the capital position of many Ukrainian banks has deteriorated because of the devaluation of the Grivna. The Ukrainian economy has had almost no growth during the last 2 years and for 2014 a decrease of 5% is forecast. Many foreign banks have exited the Ukrainian market. And since the Russia-Ukraine tensions started, the Russian banks, which are quite important to the Ukrainian banking system, have stopped to credit the Ukrainian economy. The negotiations between Gazprom and Ukraine about gas prices have failed.

Given this scenario, the IMF programme to stabilise the Ukrainian economy assumes great importance. This is an $18 billion programme which includes a re-capitalisation of the Ukrainian banking system. The Ukrainian Central Bank also has a big role to play to stabilise internal structures, set policies and ensure liquidity.

The IMF programme is both short term and long term and will work at different levels. But we have to remember a lot will depend upon the political situation.

Q: How do you see Kazakhstan?

Per: Kazakhstan has economically almost everything. Fundamentally the country is in a good situation with its tight budgets, reserves, etc. But even Kazakhstan had to devalue its currency, the Tenge.

Yet, a lot more needs to be done to strengthen the banking system. There is a restructuring of several banks going on and we hope that this ongoing merger of KKB and BTA will help to stabilize the country’s banking system. The good parts of Bank TuranAlem (BTA) are now being merged with Kazkommertsbank (KKB), the bad parts of both banks will be merged into BTA.

But what is interesting is the strengthening of the corporate sector. For the first-time in post-Soviet history a government, i.e. the Kazakhstan government, will allocate substantial money to a team of specialists from International finance institutes (IFI) led by EBRD which will then choose projects in different fields like energy, transport and mining among others.

The Kazakhstan state will act as co-financier, will provide grants and technical assistance and will of course oversee the projects.

In my opinion this model or experiment could be a show case if it is producing positive results also for other countries in emerging markets.

Q: As a banker in trade finance where do you see the most opportunity? Is there still a case by case basis to invest in Russia?

Per: Turkey has done much better than expected. There is still of course a substantial current account deficit but it is narrowing which is good. The Turkish economy is in quite good shape. It’s growing quite stably with ca. 3 % as forecast for 2014.

Investing in Russia is actually more risky than ever before – but the country still offers big opportunities for FDI and trade – now it is a political question whether investors become bullish again for Russia.

In Central Europe I would certainly prefer Poland and Czech Republic and I would also add Azerbaijan and Kazakhstan. Latvia and Lithuania are also doing better than expected. Soon we will see all three Baltic states belonging to the Euro zone. Who would have thought about this 10-15 years ago?

Q: Given their trade levels with Russia how much could the countries on the Russian rim be affected?

Per: The Russian Customs Union countries will of course be impacted but those that have opened trade, and can raise trade levels, for instance with China may not be quite as severely affected. It depends on the degree of inter-trade dependency. Some are more dependent other less. For instance, Azerbaijan is less dependent since they can shift a part of their exports, especially agricultural commodities to other countries. Azerbaijan has also managed to export part of their commodities to the West. Kazakhstan does have a significant trade with Russia but it also has flexibility. And it has significantly increased trade relationships with China.

Thank you, Per.

IFA's New Network for Young Professionals

Let's Build the Future!

Johanna Wissing on youth initiatives at the IFA

It’s no secret that the development of young potential is key to the continued growth and on-going success of global trade in today’s world, and in the ever-evolving and growing trade finance markets. Therefore, the IFA is delighted to introduce its newly-founded initiative: Let’s build the Future! – Young Professionals in Trade Finance & Forfaiting. 

As the name suggests, our aim is to help support young trade finance practitioners’ professional growth by developing a strong network that fosters education, knowledge exchange, transfer of ideas and skills, and a lot more.

The team running this global venture currently consists of two young professionals with some years’ experience in trade finance, located in key European markets; Philipp Moulas (UniCredit Bank AG) in Germany, and Johanna Wissing (Barclays) in the United Kingdom.

All young colleagues working in trade finance and forfaiting are invited to join us and become part of IFA’s investment into the future. Over the coming months we will be launching various initiatives, including networking events, courses and mentoring programmes, and we are hoping to get as many of you involved as possible. First and foremost of course, we hope to see as many of you as possible at the annual IFA Conference in Barcelona!

Email: johanna.wissing@barclays.com

Feature: The Youth Guard

A New Generation of Trade Financiers

Duarte Pedreira is currently a director at the emerging markets trade and commodity finance advisory boutique, Caspian Sea Capital – “CSC”. Duarte’s trade finance experience began with a Portuguese bank in London, where he spent most of his time as a trader, working side-by-side with some of the forfaiting market’s best known professionals, originating and trading not only traditional forfaiting market products, but also syndicated and bilateral loans. 

Duarte then spent two years in Luanda with the newly established Standard Bank Angola, initially as head of trade finance and later as head of transactional products and services, following which he was invited to work in the Standard Bank Group’s head office as head of trade finance sales for Africa. In April 2013 he returned to London and joined CSC with the mission of providing customised trade and commodity finance solutions and specific know-how to clients in jurisdictions less explored by mainstream international banks.

At CSC, Duarte is responsible for advising both financial institutions and corporate clients on structuring and placing trade and commodity finance. Although he is primarily based in London, Duarte travels extensively to countries such as Azerbaijan, Georgia, Turkey, Angola, and South Africa, amongst other emerging markets. 

“The greatest challenge in financing frontier emerging markets is still the prevailing information and knowledge asymmetries between borrowers and lenders”, he says, “and it is our role to bridge those gaps by studying those markets’ legal, regulatory and business environments to the greatest extent possible, enabling financing structures that make sense both to our clients and to the liquidity providers which have the risk appetite to fund them.” 

CSC’s commitment to delivering high quality financing advisory solutions to its clients is further enhanced by having Tom Hoffman as its Chairman. Tom is one of the City’s most seasoned and best known bankers, with more than 40 years’ experience in investment banking and international banking. Tom is also a Member of the Council of the City of London and its Finance Committee and its Financial Investment Board.

IFA Regional Committees

Chair of the RC committee

Ms. Silja Calac, UniCredit AG, Munich

Email: Silja.calac@unicreditgroup.de

German Regional Committee

Chairperson: Waltraud Raderschall 

Email: waltraud.raderschall@commerzbank.com

Deputy: Sandra Beck

Email: sandra.beck@kfw.de 

North European Regional Committee

Chairperson: Paul Jennings

Email: paul.jennings@arabbanking.com

Deputy: Damian Austin

Email: damian.austin@barclays.com

Southern European Regional Committee

Chairperson: Stefano Belucci

Email: Stefano.belucci@cariparma.it

Deputy: Stefano Cesari

Email: stefano.cesari@unicredit.it

Central and Eastern European Regional Committee – CEERC

Chairperson: Semih Oezcan

Email: semih.oezcan@rbinternational.com

Deputy: Robert Fleischmann

Email:robert.fleischmann@ba-ca.com
North East Asia Regional Committee - NEARC

Chairperson: Guo Lixin

Email: guolixin@bankofchina.com

Deputy: Wang Qijie

Email: wantqijie.zh@ccb.com


South East Asia Regional Committee-- SEARC

Chairperson: Kenneth Tay

Email: kennethtay@hsbc.com.sg

Deputy: Sophie Zhong

Email: sophiezhong@bankofchina.com


Brazil Regional Committee – BRC

Chairperson: Renato Schulman

Email: renato.schulman@finantia.com.br

Vereinigung eidgenössischer Forfaitierungs Institute – Vefi

Chairperson: Dieter von Boddien

Email: boddien@atlanticforfaiting.com

Deputy Chairperson: Stefan Vögeli

Email: stefan.voegeli@credit-suisse.com

Welcome New Members

FCMB (UK)

FCMB (UK) Limited, established in 2008, is the latest member to join the

International Forfaiting Association (“IFA”). Terry Rust who is well

known in the forfaiting community will Head the Trade Finance activity of

the bank. Terry will also be responsible for all matters relating to the

IFA.

FCMB (UK) Limited, is a UK incorporated and regulated bank, member of FCMB

Group Plc, a leading banking group headquartered in Nigeria. It provides

Trade Finance, Corporate and Investment Banking Services along with Stock

Broking Services for Institutional clients, wishing to trade in Nigerian

equities.

On the announcement, Mr. Paolo Provera welcomed Terry Rust to the IFA

community, wishing him and FCMB (UK) Limited many years of growth and

success. The IFA is delighted to continue to attract new members all over

the globe.

IIG Bank (Malta) Ltd.

The IFA is pleased to welcome a new Member to the Association, IIG Bank
(Malta) Ltd.

IIG Bank (Malta) Ltd has been established in Malta since March 2010. The

bank is an affiliate of the International Investment Group LLC, an

established global trade finance manager based in New York specializing in

the global commodity export sector with a focus on the emerging markets.

The IFA Chairman, Mr. Paolo Provera welcomed IIG Bank and said “I have

known Ray for many years and I am very pleased to welcome IIG Bank in our

association as the Bank is now looking to implement its second phase of

growth to build the bank’s profile in international trade and commodity

finance."

We look forward to greeting you all soon in Barcelona

Best regards

The IFA Board

Paolo Provera, Sean Edwards, Sema Zeyneloglu, Daniel Schär, Lorna Pillow,

Guo Lixin, Silja Calac

For details of membership please contact the IFA website at:

http://itfa.org/membership/benefits/

In Memoriam

"Having had a blissful year of full retirement, living in France".

Martin Robert Valentine Ashurst

In remembrance of Martin, banker, passed away on the 22nd of March 2014,with fond memories and love from all his friends in the banking world and beyond.

A man blessed with an amazing sense of humour and a love for all that made him a legend.

His wife Teresa Ashurst has kindly sent us this photo with the caption above.