Tuesday, 18 October 2016


One of the key themes to come out of the recent ITFA conference held in Warsaw was the increasing importance of the role of distribution and syndication within trade to help achieve success in the changing and challenging market environment.

“The role of distribution is crucial within trade finance today,” declared Robert O’Donoghue, global head of receivables and payables business at ING Bank. “The bank market is just not big enough, so distribution is all important. This paves the way for additional investors to come in,” he added.

Panel moderator, Anurag Chaudhary, global head of trade distribution and syndication at Citibank, pointed out that key alternative investors were institutions such as pension funds, hedge funds and a number of players within the insurance market.

This discussion took place in a mainstream panel on day two of the annual International Trade & Forfaiting Conference (ITFA) held in Warsaw, Poland at the beginning of September, with bankers from five international commercial banks exchanging views on the current state of the trade finance market.

John Monaghan, global head of supply chain finance at Citi based in New York stated: “There are tremendous attributes on distributing assets. There is a big debate going on as to when you have a good asset providing good yields why would you sell in such a circumstance. For every bank there is a different dynamic.”

Looking at the way each bank handles the role of distribution and syndication within their banks, Karl Page, head of trade syndications at Barclays, declared: “Within Barclays, it plays a key role in our business, and we are seeing further developments of this whole area, with an emphasis on capital and returns. And, the better our syndication capability then the more help we can give our clients.”

Page added: “It’s not always appropriate to syndicate to other banks. So we also look now more at the non-bank market.”

Taking this on a little further, Page also noted that his bank is trying to get a better understanding, through ITFA, of what regulators further want on risk mitigation. And this is an area which concerns almost every bank, with financial institutions having to interpret a never-ending range of directives from regulators on risk, balance sheet and capital, with many trade bankers feeling that they are not getting a fair deal from the regulators. However, bankers largely agree that proper regulation supports business development.

At Lloyds Bank, Clive Higglesden, global head of trade products, said: “In terms of what we are trying to achieve through distribution, a lot of parameters need to be considered. On return of regulated capital, distribution can significantly enhance returns. It can make a lot of a sense to have funded participation. But unfunded might be a way to go. Other options include the use of ECAs [export credit agencies], because of their high credit rating.”

He added: “We will need to look at regulatory treatment, as this can impact on the funded and unfunded models.”

Earlier, the debate focused on the development of supply chain financing and how that was impacting distribution. Monaghan remarked: “Some years ago, a $50 million supply chain finance programme would have been big. Today it is not - these programmes now run into the billions. The size of these programmes leads to thought on alternative investors. But we need better automation to help distribution to alternative investors.”

Also on the supply chain finance front, O’Donoghue stressed: “One of the things financial institutions will look at is the lack of standardisation. We do need clarity. We buy trade receivables and they sit in the capital bucket on balance sheet.”

Gerhard Schipp, head of product management, trade and supply chain finance at Commerzbank, also remarked that on the distribution front it was: “very difficult to find a standard for supply chain finance, compared to other programmes and products”.

While Monaghan pointed out: “Securitisation programmes out there today also include supply chain finance programmes.” He also noted: “Institutional investors want a big bundle.”

Monaghan added: “When you have a good quality asset, the trick is how do you put that into the right distribution model?”  

Chaudhary also asked the panellists who it was within their institutions that decided to sell assets.

Responding to this, Schipp at Commerzbank replied: “In our bank it is quite easy. The relationship manager decides what to sell. Our distribution team decides who to sell it to and how to sell it.”

Higglesden at Lloyds noted: “The hurdle to decide what to sell and when differs with each institution. At Lloyds, it’s a joint decision between product sales and distribution.”

For Citi, Chaudhary stated: “Trade distribution doesn’t decide what to see, relationship managers do.”

While for ING, O’Donoghue declared: “It’s a joint decision. He who shouts the louder probably does the best!”

Through an entertaining panel, the panellists also looked at other key issues such as pricing, liquidity, opportunities for growth, the handling and use of data, negative interest rates, the impact of low commodity prices, increased risks and threats to banking, and the impact of fintechs and potential of the blockchain in trade.

ITFA provides a unique forum

The ITFA annual conference has evolved significantly over the past few years, and certainly became much more encompassing of trade product sectors when the old IFA moved to wrap up more of the trade market in a natural progression, and with the subsequent name change to ITFA.

And the ITFA conference today is a valuable addition within the market allowing financial practitioners to gather and discuss existing and new business as well as trends within the industry. A formally organised networking afternoon provides a useful break between the main panels and presentations. While in addition, entertaining networking dinners allow delegates to socialise with ease. It is a very successful format which has a growing following.

In his opening address of the conference, Sean Edwards, ITFA chairman, and legal counsel at SMBC, reported that ITFA had done a lot over the past year, particularly within the realm of terminology and consistency on the trade finance front (forfaiting and trade receivables) through promotions in Moscow and seminars in both Paris and Vienna. He also noted that ITFA had been at conferences with Afreximbank in Nairobi and Cairo, where education programmes had been opened for Afrexim staff. He declared: “Education is an important part of what we do.”

ITFA is also now a key institution well placed to put forward the views of its members and the trade finance community. And this is something which would appear to carry additional weight as ITFA grows in stature. Edwards noted: “We have also engaged in some advocacy on Basel 3.5. We have written to the regulators to express the views of the association recently.”

Such direct action is not just something the members simply want, it is something which is sorely needed if trade is to get a fairer hearing and ultimately better deal with national, regional and international regulators alike.

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