Thursday 22 January 2015

CHAIRMAN'S MESSAGE - Paolo Provera, Chairman ITFA / General Manager ABC International Bank Plc.- Milan Branch

Dear Members and Friends,

May I firstly take the opportunity to wish you and your families a very Happy and prosperous New Year! Once again I would like to thank all those who participated to the ITFA Annual Christmas Party  that  was certainly a successful event attended by more than 150 guests.  This being the first issue of the Newsletter this year, I would like to share some of my thoughts for 2015.

Following a number of collaboration agreements which ITFA signed with prominent associations, the ITFA members can expect much more this year.  More conferences and events to attend to are currently under our consideration and we will of course keep you posted once details are confirmed.

As recently announced, ITFA will be speaking at the GTR Mena Trade Finance Week which will be held from 16th  to 18th February, in Dubai and, at the end of the second day of the conference, ITFA will be hosting a Networking Cocktail Party  open to  all ITFA members and with the important participation  of  distinguished guests from the GCC region. I look forward to seeing many of you there.

2014 was a successful year for the ITFA with important changes both in structure and mission and we are sure that we will be able to show the positive outcome of this new strategy. After the Barcelona Conference six  new members joined the ITFA and  another three are in their final stage of application.  It’s extremely encouraging to see our family  growing and this will certainly contribute to reinforce our international presence through well organized Regional Committees.

Each one of us in the Board is strongly committed and well motivated to improve ITFA’s importance on the international scene as well as to represent our members’ interest on important stages.

Please keep sending your thoughts and suggestions on what you expect from ITFA during 2015, by sending an email to myself, any of the board members or to our general email,   

We look forward to hearing  from you and meeting most of you at our upcoming events.

Best wishes
Paolo Provera


GLOBAL TRADE: AT (ANOTHER) TURNING POINT; by Giovanni Bartolotta, Group Head of Risk Management, FIMBank plc, Malta

What happened to global trade?  This is the question that is puzzling many analysts and commentators in the wake of the recent slowdown of global trade growth. Since the 1950s (see Chart 1), international trade grew faster than GDP –at a ratio of 1.4 -, with the 1990s representing a golden decade for trade, with growth rates more than double those of global income. This trend appears to have reversed in the last three years, with trade growing at 3% in 2012 and 2013 (and expected at a meagre 3.1% in 2014, according to WTO forecasts), a slower growth rate than the global economy. Suggestions of ‘peak’ trade abound in the financial press. The causes for such statistical anomaly could be both cyclical and structural and are usually broken down as follows:

1) the ongoing crisis of the Eurozone economies whose internal trade represents about 25% of global flows;

2) a secular transformation of the Chinese economy, where overseas parts for products assembled in China are gradually being replaced by parts made in the country (see Chart 2), especially in factories built inland over the years by foreign companies –it is becoming evident that the cost to move such parts to final assemblers is lower than shipping them from overseas, due to the improvements in the country’s transport infrastructure;

3) despite being a more recent trend, the end of the commodity boom is also held responsible, with rising volumes of energy and food exports not being able to compensate for the price weakness of commodities (caused, especially in the case of oil, by a supply glut and more efficient use of resources);

4) a lower supply of trade finance, sparked by the global financial crisis of 2008, which saw a significant increase in regulation and capital costs for providing trade finance to importers and exporters. This resulted in many leading European banks exiting from the sector altogether;

5) a slower pace of trade liberalization and some re-emergence of protectionism, also caused by the financial crisis.

While there is little evidence that trade finance developments and slower liberalization played a role in sluggish trade growth (will come back to this later), the reality might be that such slowdown is only a reversion to long-term trends, after an extraordinary period of growth in the 1990s when the emergence of global supply chains shaped a sea change in the world’s economic infrastructure. Trade growth started slowing down before the 2008 financial crisis, mainly as a consequence of reduced offshoring (or even reshoring, although this was quite limited) of industrial production. China can be seen as the main culprit for this, but only because, in the words of Aaditya Mattoo, head of trade research at the World Bank, “it globalized internally” a longer section of the global supply chain (i.e. trade flows took place within China and not across borders). Despite this, China has also emerged as the true “mega-trader”, a role last played by Victorian Britain at the end of the 19th century. China represents today 11.5% of global trade (which in turn constitutes almost half of its own GDP).  However, as China’s economy’s matures, its contribution to global trade growth and the pace of globalization will necessarily diminish and be replaced by other players.
An historical look at the different waves of globalization will explain why. The first wave occurred before World War I, when European countries imported commodities from the rest of the world in exchange for manufactured goods. Goods were produced in a region, but consumed in another. The second wave took place after World War II and was characterized by the break-up of production itself, with various stages performed in different locations. This was the traditional global supply chain.
The third wave of globalization is the one we are witnessing today, where growing specialization is further breaking down manufacturing of goods into specific tasks. Take the example of Apple products, which are designed in California, assembled in China, but with parts actually produced in other countries like Taiwan and Korea. Another fitting example is that of t-shirts manufactured in Mexico, with textiles imported from the US and the final product re-exported to the US. One might argue that the actual import is one of “tailoring services” from Mexico to the US.
Rapid advances in telecommunications, robotics, 3D printing and other edge technology are lowering the barriers to further specialization. As China matures (and its wages increase) further countries are joining the fray and are becoming specialized (and low cost) providers of either design, assembly or other manufacturing services to the global economy. Countries like Vietnam, Bangladesh, the Philippines and increasingly also Nigeria, Ghana, Uganda and Ethiopia are rapidly becoming integral part of this third wave of globalization. This phenomenon is known as the “flying geese” pattern of trade, where development of an economy and its subsequent wage increases trigger further offshoring to other economies. Whatever the reason, this will in turn provide a boost to global trade growth and allay fears that global economic growth is coming to a halt.
What were the repercussions of these global trends on trade finance?  Trade finance is certainly important for global trade, with the BIS estimating that around a third of all trade is supported by some form of bank financing. Did the global trade collapse (-38% from peak to trough) cause trade finance also to collapse or vice versa? It is true that, at first sight, traditional trade finance stagnated in 2009-2013, with many banks withdrawing from the market and causing a contraction in capacity in trade and export finance. However, the resulting gap has been filled in part by international banks and large emerging market banks. The emergence of such new competitors also contributed to tighter margins in traditional trade and export finance. This was particularly true in a number of markets, including Turkey, China and Brazil, where local banks sought to grab market share from the traditional players. The story is different for receivable and supply chain finance, where improvements in the legal environment allowed these less traditional trade finance products to flourish, increasing their share of overall trade finance transactions to around 25% of the total.
Changes in global banking regulation are also driving another significant phenomenon in trade finance. The introduction of stricter liquidity requirements under Basel III (for example the Net Stable Funding Ratio) has made certain asset classes less expensive to house on non-bank balance sheets. This is leading to the emergence of new non-bank players in trade finance: factoring and leasing companies, credit insurers, asset managers and hedge funds, with the latter looking at medium- and long-term trade finance assets as an alternative investment class, with relatively attractive yields (and lower capital requirements than for banks).
The globalization of trade has also been accompanied by digital and technological progress, which is affecting trade finance patterns. While in the past non-bank players were at disadvantage vis-à-vis banks because of the lack of distribution channels (i.e. bank branches), more and more trade finance transactions are now available and can be captured online, allowing non-bank players to access corporate customers more easily. This is shifting the traditional feature of trade finance from being ‘documentation-based’ to being processed entirely electronically. All these trends are rapidly increasing the availability of trade finance (see Chart 3) which, combined with the fading of protectionist measures, will act as an engine of growth for global trade in the next decade - albeit at lower rates than in the past 20 years. That is, until the next wave of globalization takes shape.



Further to the email circulated on the 09th December 2014, the ITFA Board is pleased to announce that the board of the NERC has now been officially set up as follows:


Dalia Kay of Federated Investors & Zeyno de Vries-Davutoglu of Credit Europe Bank N.V.

Voting Members:

Charlotte Wiltshire of ABC International Bank plc

Dean Bates of Standard Chartered Bank

Karl Page of Barclays Bank plc

Martin Caslavska of Bank of China

Reinoud le Coultre of ING Bank N.V.

Non-Voting Member:

Luiz Simione of HSBC

The ITFA Board is confident that the new NERC will add value to the members it represents, as well as to the whole association. Please join us in congratulating the new Regional Committee members, and wishing them all the best of luck in their new roles.


New ITFA Members

It is with immense pleasure that ITFA announces the following new members.
Incorporated in 1968, the National Bank of Abu Dhabi (NBAD) offers a range of banking services which include retail, investment and Islamic banking services. With over 125 branches and nearly 585 ATMs across the country, NBAD is one of the largest networks in UAE, as well as having the largest international network, having 60 branches and being present in 18 different countries, all over the 5 continents. Since 1977 it has been represented in London.  Apart from forming a key element of the Banks International Division, the London office has also acted as a hub for the bank's regional activities in Europe.  In terms of credit ratings NBAD's global ratings are Aa3 from Moody's, AA- from Standard & Poor's (S&P) and AA- from Fitch.  NBAD will be represented as Main Delegate on the ITFA by its London Office, through Jeff Fallon, who is the Executive Director GTB Head Europe & Americas.

Orient Trade Finance Consultants Ltd (OTFC) was registered in Hong Kong in January 2012, and started operated its Shanghai branch the following May.  OTFC provides a wide range of finance solutions targeted towards the traditional documentary credits and guarantees, as well as catering for other trade related products in the global market, such as pre-shipment finance, import finance, transfer L/C finance, forfaiting, receivables financing, inventory financing and leasing finance.  Its founder, William Xu, who is a trade finance banker with over 25 years of experience, will be the main delegate for all matters related to ITFA.

Wilben Trade Limited (WTL) is a principal trader involved in the buying and selling of a broad spectrum of commodities and industrial goods. In addition to its daily trading activities, the group is also actively involved in sourcing and arranging trade finance for its customers. Through its international network, the company provides tailor made solutions to buyers, suppliers and financial institutions by offering solution-orientated trade finance structures including the forfaiting of receivables. Since starting their operations in 2014 the group has arranged and participated in almost $400m of transactions. The company is headquartered in the United Arab Emirates and has subsidiaries in Singapore and Hong Kong. WTL will be represented by it's Chief Executive Officer, Marcus Wade.

Please join us in welcoming these new members on board.



As recently announced, on the 17th February 2015, ITFA will be hosting a Networking Cocktail Party. The event will be part of the GTR Mena Trade Finance Week 2015 which will be held in Dubai between the 16th and 18th February 2015. We encourage our Members to attend the event which is a great networking opportunity for anyone doing business in the Middle East. For more information on the program, please click here.  May we also take the opportunity to remind our Members that all communication (including invitations) circulated by ITFA, including its Regional Committees, may be distributed to all contacts of the Member institution, whether it being Head Office, affiliates, subsidiaries and branches. 

A kind reminder that since access will be restricted to confirmed guests only, you are kindly requested to RSVP by the 28th January 2015, by sending an email.  The ITFA Board looks forward to welcoming its Members and more to another outstanding event that ITFA will be hosting. We hope to see most of you there!