Friday 3 June 2016

CHAIRMAN'S MESSAGE - Sean Edwards, ITFA Chairman / Head of Legal at SMBC

Dear Members and Friends,

As British banking awaits the potentially revolutionary results of a vote on membership of the European Union, and with summer just around the corner, when trading activity tends to subside during this period, emerging markets could well benefit from the subdued trading activity on capital markets, as growth forecasts seem to be stabilising, albeit selectively by region, on the back of the recent recovery in commodity prices.

Sell in May and go away?  Not quite this time round. The US Dollar and the trajectory of interest rates in the US continued to be the greatest contributor to uncertainty and volatility during the month of May. The Risk-On button was switched on and off a number of times during the month, but despite the increased certainty of a June rate hike in the US, Emerging Markets were still in demand, with the more defensive regions such as Asia and Europe outperforming. The same cannot be said of those countries that are heavily reliant on metals and mining, which sectors underperformed. In fact, outflows were registered as the strong US dollar impacted investor appetite for EM assets.

On a more exciting note, the ITFA conference website is live and registrations have started flowing in! Please click here to register. Also bear in mind that the Early Bird Discount has been extended till 20 June 2016. Therefore, we urge you to book at your earliest in order to avail yourselves from these preferred rates. 

Also, ITFA is totally aware of the need for finance professionals to network, talk with old and new partners and find opportunities as cost effectively as possible. As this year’s Conference starts to gain pace, we are pleased to announce that our networking portal is now open for business. All registrants will be sent an email with a link to a networking page. You can then look up availability of other delegates and book a space in our dedicated networking room. So let’s get this web of networking tangled and hope to see you in Warsaw!

In this month’s Newsletter, we invite you to read an interesting article written by Dr. Benedict Oramah titled ''The Fall and Rise of Structured Trade Finance.'' The ITFA Board is also pleased to inform its readers regarding the revamp of the Southern European Regional Committee (SERC). Following the month of May which was laden with ITFA events, we are hereby publishing a short press release on the ITFA GRC Annual Stammtisch and another on the NERC Amsterdam Spring event.

We look forward to hearing from you with any feedback you may want to share with us by sending an email to myself, any of the Board Members or to our general email,

Best wishes,
Sean Edwards

THE FALL AND RISE OF STRUCTURED TRADE FINANCE by Dr Benedict Oramah - President and Chairman of the Board of Directors of African Export-Import Bank

As recently as two years ago, the future of Structured Trade Finance (STF) was increasingly becoming doubtful. Supply Chain Finance (SCF) had virtually consolidated its dominance and threatened to throw STF into obscurity. The reason for this was not farfetched. Africa, which represented the major playground of STF practitioners, had from 2000 maintained steady economic progress, making it difficult from a country risk point of view to justify the fixation on STF as the instrument of choice for financing African trade.

The origins of STF, date back to the late 1980s and early 1990s when Africa descended precipitously from a continent of promise to one with an uncertain future. The global debt crisis of that period, although of Latin America origin, reverberated in Africa with disastrous consequences, including the dry up of international trade finance flows into the continent. The debt crisis triggered a commodity price shock which made it difficult for many developing economies, including African economies, to meet their trade debt obligations. The concept of country risk took centre stage and regulators in major money centres introduced stringent restrictions to taking developing country payment risks. It was no wonder that the usual Letter of Credit lines to most of those countries quickly disappeared. For instance, the African Development Bank (AfDB)[1] estimated that the cost of trade finance to African traders in the late 1980s averaged 15% of the value of imports compared to an international average of 1.5% to 2.0%. This amounted, in value terms, to US$10 billion in 1986 – a figure equivalent to 3% of Africa’s nominal GDP in that year. African traders also paid a margin on export finance of about 3 percentage points above the LIBOR – a pricing far higher than an average of about 1% in other regions at that time. This is despite the fact that such financings were usually fully secured, most times cash-collateralized and very short term.

In the midst of all of these, in the 1980s and early 1990s some international trading companies survived and continued to trade. However, banks supporting them took a more hands-on approach to evaluation of the risks and monitoring of such loans. Commodity producers and importers began to be included in the risk assessments as banks were no longer comfortable in giving a free hand to traders they financed to manage those relations.
STF emerged from the ashes of that debacle and as I have argued in my recent book titled “Foundation of Structured Trade Finance” published in 2015 by the Ark Group/Trade Finance Review (TFR), imaginative bankers in Bankers’ Trust Company, in the early 1990s used the principle of separability and transferability of trade finance risks to return to African trade finance. To finance the imports of crucial petroleum products to Tanzania, at that time, they transferred the payment risks away from Tanzania to highly rated Organization for Economic Cooperation and Development (OECD) Economies by taking as security the assignment of cotton sales proceeds due to the Tanzanian authorities. Thus STF flourished, hinged on retaining export performance risks on developing economies with credible performance track record and transferring the payment risk to an OECD country. Figure 1 presents a sketch of the transaction design used by banks for pre-export financings at that time usually with the exporter being a government owned commodity board. The design of the transaction provided for a structure that transferred payment obligations to OECD countries thus mitigating the risk of rescheduling inherent in unsecured loans to many developing economies at that time.

It is obvious from Figure 1 that the assessment of the ability of the exporter being financed to deliver on the terms of the export contract was key to the transaction. The Lenders were usually sufficiently convinced that the commodity boards, being monopsonist buyers of traditional export commodities, would deliver the commodities at approximately the right time, the right quantities with acceptable quality and to the right place.

Soon after the path-breaking Tanzanian deal others quickly followed, notably Ghana (Ghana Cocobod), Senegal (Sonacos), Zambia (Zambia Consolidated Coper Mines, ZCCM), Zimbabwe (Gold-backed Reserve Bank of Zimbabwe), etcetera. 

For as long as the macroeconomic environment remained difficult, STF remained the instrument of choice for trade financing in Africa and many other developing economies.

By 2000, Africa had begun to experience a rebound. In particular, growth rate of real GDP, which averaged about 2% during the previous two decades (1980 to 1999), averaged over 5% (Figure 2) during the 2000s buoyed by a decade long commodity boom, as well as macroeconomic and political reforms. With these positive economic developments, STF began to lose its sparkle in Africa. As many African economies obtained credit ratings, and began to have access to international bond markets, a major plank for justifying STF, that is high perceived African country payment risk, began to weaken. In addition, the global economic crisis that hit in 2008 also put huge question marks on the myth of the ironclad credit quality of OECD economies. More specifically, the blistering rate of growth of the BRIC (Brazil, Russia, India and China) in the 2000s unleashed a commodity boom which in turn aided the sharp recovery of many commodity dependent developing economies, including those in Latin America and Africa. The consequence was a surge in the growth of Africa’s merchandise trade and improvements in current account positions (Figure 3). 

Trade rose by about 4 folds between 2000 and 2010 (Figure 4). Trade with economies in the South also rose sharply such that developing markets share of Africa’s merchandise trade rose from less than 10% in 2000 to over 45% by the end of 2010 and by 2014, China accounted for 20% of Africa’s trade, becoming its second largest trading partner after the European Union (EU).

Other factors at play included improved credit worthiness of many developing countries, especially those of Africa as a result of international efforts that led to debt cancellations/debt forgiveness in some countries, improvements in investment climate and regulatory framework, political reforms, better macroeconomic fundamentals and debt sustainability, and discovery of natural resources and development of new mines and oil fields, in many hither-to resource poor economies. Net capital flows (private and official) to Africa grew at an average annual rate of approximately 45% from US$8 billion in 2001 to US$117 billion in 2007, before declining by 48% year- on- year to US$61 billion in 2008. The flows subsequently recovered to US$78 billion in 2009.

Further, capital markets became more receptive to African sovereign and corporate risks. Traditionally, in the 1980s and 1990s, bond issuances by African counterparties in international capital markets were few and far between and when they occurred was restricted to South Africa and North African economies. However, in the early 2000s, a number of counterparties, especially African sovereigns began to access international debt capital markets. Consequently, net bond issuances by African Sovereigns rose from US$1.9 billion in 2001 to US$6.7 billion in 2007 before contracting to US$-0.7 billion in 2008. Net bond issuances recovered thereafter to US$10.6 billion in 2014.

In addition, short-term debt inflows (loans from international banks) remained the single most important component of financing from private creditors to developing countries and Africa in particular, accounting for over 44% of total debt flows during 2008-10. These flows in net terms, primarily trade related, rose steadily from US$2.1 billion in 2003 to US$3.7 billion in 2010.  Trade debt flows improved significantly not only on account of better macroeconomic conditions but also due to better financial sector regulatory environments across Africa. In this regard, many African countries introduced regulations that led to the strengthening of the capitalization of banks. The strengthening of the capital base for banks in Africa impacted positively on their ability to finance trade more efficiently as they became better trusted counterparties to international banks. African banks also became more international, operating across boundaries. As at 2012, more than 23 African-owned banks operated outside their home.

As African economies grew, its middle Class also expanded and increasingly the continent began to be seen as a “market rather than a donor play-ground”. A combination of these factors as well as some improvements in infrastructure, as thanks to Chinese funding, made many large corporates to begin to integrate Africa into their supply chains. Supply Chain financing thus began its gradual ascendance. Receivables financing, factoring and reverse factoring have since then taken centre stage. Whereas in the 1990s and early 2000s, global trade finance seminars and conference circuits used to be dominated by Structured Trade Finance, by the decade of 2000s, and early 2010’s, Supply Chain Finance had taken over; whereas it was fashionable for global banks to boast of strong STF departments and capabilities, by the 2000s, many of those units had begun to disappear with SCF beginning to emerge out of their ashes.

Events of the past two years appear to be putting some breaks on the transition from STF to SCF. In this regard, developments in global commodity and financial markets since the mid 2014 appear to be taking us back to the 1980s and reviving strong interest in STF among international trade financiers. Commodity price shocks have resurfaced hurting many African economies. As a consequence of the commodity price decline, markets have once again become nervous. Many banks have started cutting country lines. Government fiscal positions have deteriorated and growth have slowed sharply. During the last five years, Africa’s real GDP has grown at an average annual rate of 3 to 4 percent compared to over 5 per cent during the 2000s. National debt (both domestic and foreign debt) of many countries, especially oil producing and exporting countries in developing regions, has risen sharply. These developments coupled with rising import bills have placed enormous pressure on trade balance and current account positions, with many recording trade deficit the first time in more than two decades. Current account balances, which were mostly favourable in the 2000s, have suddenly plunged since 2015. The immediate impact of the current crisis has been a tightening of banking regulations in major money centers, significant deleveraging and cuts in credit lines to developing countries, including Africa, as many international trade finance banks sought to build up their balance sheets in response to market and regulatory pressures. Between 2014 and 2015, for instance, trade-related bank lending (both short and medium term) and syndicated lending to developing economies declined by almost 30 percent. In terms of pricing, the spread on bank and syndicated lending has widened sharply from the pre-crisis range of 100 to 150 basis points to a range of 300 and 400 basis points in 2015; tenors have also shortened, mostly to less than 6 months. Many international banks are increasingly demanding full cash collateral before they can confirm Letters of Credit from some markets and many African exporters can now hardly access export finance.   

Once again the doors appear wide open for STF. It appears that the stone that the builders were quick to reject was again becoming the head corner stone! But how would STF of the future differ from what we had in the past. Like many developing regions, Africa is today better prepared to deal with adverse commodity price shocks; financial industry has grown significantly across the continent; and re-capitalization of many African banks and changes in the regulatory regime in some African markets have made it easier for banks to internationalize their activities and participate in large ticket trade finance transactions. Evidence of improved capacity is reflected in recently closed deals, including a deal coordinated by Afreximbank where five Nigerian banks committed about USD1.3 billion in support of an Independent oil producing company operating in that market; in Cote d’Ivoire, the annual trade finance needs of its national oil refinery in an amount of slightly under USD1 billion is fully funded by African banks; and in Zambia, the national oil import requirements were virtually funded by African banks. Fund from Chinese and Indian banks are also becoming very important with their EXIM banks providing liquidity critical for the financing of investment goods imports into Africa.

Under current environment, STF banks must be prepared for new realities – the conceptual framework would be the same but there has to be a complete change in mind-set. As I posited in my book, of the various definitions of STF, the one I fully subscribe to is that:

it is the art of transferring risks from parties less able to bear them to parties more equipped to bear them in a manner that ensures an automatic reimbursement of the advances from the underlying transaction assets”.

With this definition in mind, we have to accept the universality of the concept of STF. We must not be held hostage to the idea that a deal is an STF deal only when the performance risk is retained in Africa (or any other developing country for that matter) and payment risk is transferred to an OECD country; we have to abandon the notion that items that can qualify for STF financings must be exchange-traded commodities; and we must come to terms that STF deals can be of maturities exceeding one year.

With the changes that have occurred in the past two decades, the new STF structures that would emerge in response to current crisis will have to contend with the following:
  • the dominance of China as the leading trading partner of many developing economies that would be candidates for such deals. While China is investment grade rated, there is limited knowledge of the credit quality of some of their trading companies and manufacturers, given the economic slowdown China is itself witnessing. STF practitioners have to accept the reality of China’s dominance and seek to learn more about the credit risks of counterparties there as well as the regulatory and institutional arrangements for trade debt payments;
  • the European debt crisis that came right on the heels of the global economic crisis negatively impacted the credit ratings of some European Economies as well as their banks and corporates. Many have lost their stellar credit ratings destroying the main plank on which the traditional STF stood. More in-depth buyer due diligence  must of necessity include country risk considerations;
  • the gradual relocation of some global companies to Africa as well as some degree of success achieved by some African economies dependent on extractive industries in pursuit of value-addition have resulted in the rise in the primary processing, at origin, of some key commodities hither-to exported raw. For instance, Cote d’Ivoire had since 2014 become the country with the largest cocoa bean processing capacity in the world. The efforts of Dangote Group in Nigeria have seen the company begin to export cement. As a result, STF banks must under the new dispensation abandon the notion of commodities as the base of STF;
  • related to (iii) above is the disappearance of commodity monopolies as the trading entities STF deals were comfortable with. With the exception of Ghana Cocoa Board, those boards have all disappeared and replaced by privately held corporates without the inherent monopsonistic/monopolistic advantages the boards used to have. STF practitioners now have to understand or identify the success factors for the new entities and how best to manage the performance risks;
  • with the growing supply chains across Africa, export financing, even for commodities, may mean taking another African country payment risk. We see for example, the Ivorian oil refinery buying crude oil from Nigeria for refining and export to near markets, such as Burkina Faso. STF practitioners will have to figure out what that means for deal structures;
  • many African economies are beginning to consider the use of the Renminbi as a trading and reserve currency. If this gains momentum, it will have implications for STF;
  • whereas in the 1980s and 1990s, many credit insurers, including Export Credit Agencies put most African countries off-cover, today the picture is different. Many of these institutions have decent limits for African country risks. In addition, there was no African Export – Import Bank in the 1980s; today, it exists and operates a relatively sizeable balance sheet. There are similar regional banks and insurers in Africa such as the PTA Bank, Africa Finance Corporation (AFC), Africa Trade Insurance Agency (ATI), Ecowas Bank for International Development (EBID), who since the 2000s have become reasonably better resourced and operating in the trade finance space. STF under current environment will have to incorporate them in deal designs to convert seemingly unbankable deals to “bankability”.

In summary, STF has evolved with the boom and bust cycles of the global economy. From a near demise in the 2000s, STF has re-emerged as the most reliable and trusted trade finance instrument in developing markets. Nevertheless, STF structure will have to take on new form or features in response to the changes that have accompanied the economic cycles. In particular, STF deals must opt for structures that take cognizance of the new realities in the global trade finance market, including the emergence of the Renminbi as a global reserve currency, the slowdown of China coupled with uncertainties surrounding OECD economies, the emerging consciousness among African economies and many other developing regions regarding the need for industrialization and intra-regional trade, the emergence of a relatively stable and strong financial services industry in Africa as well as emergence of African champions who have become dominant players in African trade. 

[1] Source: AfDB (1992): The Feasibility Study for the Establishment of the African Export-Import Bank; AfDB, Abidjan


The ITFA Board has long been in discussion to try and reactivate the Southern European Regional Committee (SERC). Following a meeting held in Paris this month, it was unanimously agreed that Stephane Gonon of Credit Agricole CIB will chair the SERC going forward.

Moreover, Barbara Salazer of Banco Popolare and Thomas Roge of Natixis will be active members in the SERC. This newly revitalised regional committee will be expected to focus its efforts towards entities domiciled in Southern Europe mainly France, Spain and Italy, and attracting members from the area. 

We would like to take the opportunity to wish the newly formed SERC team the best of luck in their new roles. The ITFA Board is confident that the new SERC will add value to the members it represents, as well as to the whole Association. Surely we will all benefit from the energy, experience and dedication of our new team, who will be able to leverage from the work done by their predecessors.


The ITFA Board is pleased to announce the following three new members.

Marsh is a global leader in insurance broking and risk management. Marsh helps clients succeed by defining, designing and delivering innovative industry-specific solutions that help them effectively manage risk. Marsh's approximately 30,000 colleagues work together to serve clients in more than 130 countries.

Marsh is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE:MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people.  With annual revenue of US$13 billion and approximately 60,000 colleagues worldwide, Marsh & McLennan Companies is also the parent company of Guy Carpenter, a leader in providing risk and reinsurance intermediary services; Mercer, a leader in talent, health, retirement and investment consulting; and Oliver Wyman, a leader in management consulting.

Follow Marsh on Twitter @MarshGlobal, or on LinkedIn, Facebook and YouTube.

Mr Manuel Lopez will be the Main Delegate for all ITFA related matters.

Jiangsu Jiangyan Rural Commercial Bank Co.Ltd. is a dependable and trusted partner in Asia, offering a complete range of Trade and Channel financing solutions that facilitate import, export and domestic trade.

They have developed broad market on the forfaiting business on RMB with many enterprises and a variety of domestic banks, including state-owned banks, commercial banks and numerous regional banks. They are also quite concentrated on further promoting their forfaiting business, the non-recourse purchase as well as the transactions of foreign trade receivables in the near future. Besides, they hope to set up long-term cooperation with banks and institutions to deal with trade finance transactions such as forfaiting, factoring etc.

Their traders have many years of experience in financing and securing exports, especially those destined for emerging market countries. They purchase all forms of trade receivables without recourse, such as: Promissory notes and bill of exchange, Letter of credit, Domestic and cross-board RMB receivables and International factoring.

Yuyan Lou will be the Main Delegate for all ITFA related matters.

Banco Sabadell was founded in 1881 and is Spain's largest private banking group, which comprises of different banks, brands, subsidiaries and part-owned companies covering all areas of the financial business sector.

The Bank expanded its international footprint in 2015 with the acquisition of UK bank TSB and also obtained a license to operate as a commercial bank in Mexico. At year end 2015, 68% of the Group's lending was in Spain, 27% in the UK and 5% in America.

Banco Sabadell operates in 20 countries through branches, representative offices, subsidiaries and investees.

Xavier Puig Asensio will be the Main Delegate for all ITFA related matters.


The ITFA team is currently working very hard in order to ensure that its Annual Conference is once again a sucessful and well attended event. May we remind you all of ITFA's 43rd Annual International Trade and Forfaiting Conference, which this year will be held in Warsaw, Poland between 7-9 September, 2016. The ITFA Conference is a wonderful networking opportunity, so don’t miss out! We look forward to welcoming you in Warsaw!


This year the ITFA GRC combined their annual Stammtisch with the presentation of the ITFA Insurance Committee. It was hosted by Industrial and Commercial Bank of China Ltd. (ICBC), Frankfurt am Main and indeed very well attended.

The topics presented by the members of the ITFA Insurance Committee were:
  • Short introduction to the ITFA Insurance Committee and brief summary of the Insurance Survey -  Silja Calac, Swiss Re
  • Regulatory issues and challenges surrounding CRI for banks - Matthew Beckett, SMBC
  • A general introduction to different Credit Insurance Products - David Neckar, Willis
  • A trade credit solution transforming trade finance for today's world - Neil Ross, AIG.

The lively discussions on the topics presented continued during the Stammtisch, in the very relaxed atmosphere of the "Weinstube im Römer", with good food, beer and wine.


The ITFA GRC would like to thank:
  • Industrial and Commercial Bank of China Ltd. (ICBC) for hosting the workshop; and
  • the Speakers, Silja Calac, Matthew Beckett, David Neckar and Neil Ross for their excellent presentations.
Should you wish to view the presentations, these are available to ITFA members only in the Member area of the ITFA website as per link.

The GRC team already look forward to the fall event which will probably take place at the end of November 2016. As is customary, the event will be combined with the ITFA GRC Christmas Dinner.

NERC AMSTERDAM SPRING EVENT - by Bakhtiyor Naimov, Unit Manager Forfaiting & Loan Trading, Credit Europe Bank N.V.

On Thursday 12 May 2016 ITFA NERC in association with GarantiBank International N.V. and Credit Europe Bank N.V. held its annual spring event in Amsterdam.  This was the seventh annual spring event and attracted highest ever number of participants.

The event traditionally opened with a seminar that brought together well known experts on the topics concerning emerging markets and trade finance.  Simon Quijano - Evans, Chief Emerging Markets Analyst of Commerzbank AG opened the seminar with his presentation “Emerging Markets Strategy Update: What to Expect, Where to Invest?”  Simon is optimistic on growth prospects in the EM, though he argues that challenges and volatility in developed world add to uncertainty.

Raoul Leering, Head of International Trade Research at ING Bank N.V., took the stage next with his prospective for international trade.  Raoul was less cheerful about the growth and volumes in international trade and particularly saw the reason being slowdown in the Emerging Markets. A glimpse of hope is on the increasing prices of commodities from recent lows, which could potentially contribute to increase in the trade volumes. 

Following Raoul, Geoffrey Wynne of Sullivan & Worcester elaborated on taking securities in African countries.  From his point of view there is very good appetite for getting financing in Africa and advises banks to be proactive in such opportunities provided all the peculiarities are minded. Concluding the seminar was a panel discussion moderated by Senior Portfolio Manager at Federated Project and Trade Finance Core Fund, Dalia Kay.  Dalia discussed legalization and standardization of documentation in trade finance and also touched on such challenges for newly opened and to be opened markets such as Cuba and Iran.  Sitting on the panel were Sean Edwards of SMBC, Karl Page of Barclays, Ron van Staten of ING Bank and Geoffrey Wynne of Sullivan & Worcester.

The reception part of the event took place in 5&33 Gallery, which is promoted by ArtOtel and where amateur artists can display their work. During the event guests were viewing the work of Karim Adduchi, a Moroccan born artist and fashion designer who has brave and original style.  Judging on the attendance, it was another successful event in Amsterdam.   

To view photos of the event please visit the ITFA Facebook page