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.
