Message from the Chairman

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

Dear Members and Friends,

It’s Christmas again and the time for cheer. With increasingly positive news from the U.K., the US and from markets like India, it certainly looks a far brighter Christmas than one might have thought at the start of the year. 

We are very pleased to bring you an interview with Maria Castillo Fernandez of the European Commission and she’s highlighted how important it is for us as an organisation and for each of us as individual bankers to look at markets like India more positively. We at the ITFA will look at ways to work more closely with the Commission to enhance business opportunities for trade and forfaiting products but each of us as individual members needs to look into the opportunity and build our own market print in the region even within present constraints. 

Ms. Fernandez highlights that this is a key need and while pointing out that we can still look at the glass as half empty in terms of market access constraints, she also brings out a vital point—trade in India is big and it is an opportunity. 

Given the ITFA’s focus on the Middle East, South East Asia, the Far East and South Asia we are cognisant of taking steps be taking steps to continue to improve our knowledge and positioning in these fast growing sectors of the globe. The Annual Conference in Dubai next year is only one step in that direction. 

I look forward to seeing you all soon and take this opportunity to wish you all a Merry Christmas and a Happy New Year and may your Santa’s stockings be full with the growth potential that 2015 should bring!

DF Deutsche Forfait AG is back after acquittal from OFAC

ITFA has received the following statement from DF Deutsche Forfait. ITFA is pleased to welcome Deutsche Forfait back into the trade and forfaiting community.

German forfaiting specialist was removed from sanctions list without having to pay a fine

A great relief for German forfaiter DF Deutsche Forfait AG: The company has been recently removed from the SDN sanctions list of the US-Office of Foreign Assets Control (OFAC), where it had been placed in February 2014. The delisting goes along with a full acquittal. It does not involve any payment of a fine by the company. Following its removal from the SDN list, the company is free to resume  USD-denominated business without restrictions and to pick up its suspended business.

Marina Attawar

“We are glad to have managed to get off the list in a record time of 249 days”, said Marina Attawar, member of the Board of Management of DF Deutsche Forfait AG. The average OFAC listing period is around 850 days. "The listing has hurt us financially but we are convinced we will restore business in due course. One of the reasons for our confidence is the great support of our business partners that have signalled their readiness to transact with us again. Our key personnel are in place and are looking forward to getting back to business. Currently the company is considering a number of new deal opportunities,  including export facilities for Africa and Asia.

The investigations of the past months mean that DF Deutsche Forfait has been subjected to the toughest sanctions compliance checks imaginable and the adjusted compliance system of the company meets highest international standards. As a result the company feels well prepared for the task ahead i.e. continuing the trade finance business in these challenging times where we are all surrounded by international sanctions.

India’s outlook looks very positive, banks must look at ways to operate there

Maria Castillo Fernandez

Teresa Casal and Vivek Y. Kelkar spoke to Maria Castillo Fernandez Head of the division of India at EEAS

Foreign banks could not afford not to be in India and need to look at ways in which they could work there even with the current problems of market access, especially in facilitating trade, even as the EU was looking at ways and in dialogue with the Indian government to open market access. This was a key message given by Maria Castillo Fernandez in an exclusive interview with ITFA. 

The Indian market was looking increasingly positive for banking and insurance following the government change earlier in 2014 and banking industry organisations should be working closely with their counterparts in India to drive the changes required to bring the country’s banking into the international sphere, she pointed out. Ms. Fernandez also highlighted that these contacts would augment the work that the European Union is doing in its efforts to seek greater market access to India, especially in the banking and insurance sectors. 

The EU had also presented a memorandum to the Indian government with the following recommendations, result of the views expressed by the EU business representatives in India:

· The exploration of further flexibility in PSL requirements and lower the limitations to the opening of pure corporate banking outlets in tier -1 cities;

· Removal of regulatory constraints to the introduction of financial leasing and factoring

· Ensuring a stable and dependable full national treatment (FNT) to WOSs in future.

But the new Indian government led by Prime Minister Narendra Modi was seen as taking steps to open up the Indian economy across all sectors including in banking and insurance, she pointed out. While still spelling caution since the implementation of the policies was still to be seen, Ms.Fernandez said, “It is very early to say where the Modi government will make a difference but there is certainly a change in India happening. There are a lot of initiatives and he is really focused on economic growth.”

“There are equity caps in the service sectors, especially in banking and the shareholding and voting rights are limited to 26%. There are restrictions on banking products that for importers factoring and financial leasing are not possible. That is certainly a block but India does recognise that it has to open up and we are positive that there will be more flexibility in finance. The Indian central bank, The Reserve Bank of India, has been in the latest months taking steps in this direction,” she said.

Ms. Fernandez pointed out that the key to opening markets like India was continuing dialogue. “One of the issues that we feel we need more is the business to business dialogue in all the sectors. This is where I see where associations like the ITFA play an important role especially since it can promote trade and best practice,” she said. 

She pointed out that banking was one of the key sectors on the European Union’s agenda when it came to India and said that the Modi government’s “Make in India” initiative could be an opportunity for both sides to improve trade and develop trade related banking products even within the present constraints. “The Indian market has a huge potential across all sectors and we have seen the markets taking the new trends in the initiatives and the new change in a very positive way. There is 5.6% GDP growth predicted next year so let’s see. 

A copy of the Memorandum is available to our members on request which we trust you may find of interest. It is the result of views expressed by EU business representatives and not an official document representing the views of the European Union - is aimed at offering a snapshot of these comments and recommendations. These recommendations are without prejudice to the EU position on the EU/India FTA (Free Trade Agreement) negotiations as some of these sectors and policy issues may be addressed under those negotiations.The Memorandum refers to untapped growth possibilities for further investment and trade growth between the economies of the European Union and India and how European investment in India remains significantly lower than that in the other BRICS (Brazil, Russia, India, China and South Africa) nations.

The importance and challenges of insurance for the world trade

Silja Calac-Schneider discusses the new developments at the ITFA on Insurance

With growing trade volumes and increased pressure from regulators on capital requirements, banks are no longer in a position to provide for all the needs of world trade finance on their own. Insurance has become a key element to mitigate risks in trade finance.

As the Basel III regulations are being integrated in local legal systems, the impact on a bank’s capacity to finance trade increases. As banks seek ways to optimize the use of their ever scarcer capital resources, insurance becomes the perfect partner for those active in trade finance. This is because:

1.      Insurance companies are not competing entities. They will not enter into the funding and clearing business of transaction banks.

2.      Large parts of the trade asset class can't be accessed by insurers directly as they are not in a position to negotiate documents under LCs or to finance a supply chain directly.

3.      There is still large capacity available in the insurance market. As statistics from the FCI show, world exports have grown by nearly 15% over the last 5 years and cross-border factoring has achieved a growth of nearly 25% but credit insurance has grown by less than 10%.

To meet with the rising demand from the world of banking, insurance companies offer now an ever-growing range of insurance solutions to help mitigate risk-weighted assets:

Certainly political risk insurance and credit insurance, which banks often obtain via specialized insurance brokers, are the best known and established methods among those in the Trade Finance business. More recently, some insurance companies have also developed ways to cooperate with banks in the surety business offering risk cover for the issuance of performance guarantees, bid bonds, import LCs or even entire aval facilities for corporate customers. Some credit insurers cooperate with banks actively in supply chain finance to cover whole portfolios of small-to-medium sized corporate risks. And insurance companies have even entered the trade finance secondary market as investors on the assets side– i.e. with funding.

But there are still a few challenges to this partnership. Restrictive regulations put stringent requirements on the wording of a policy so that banks can use them as RWA reducing securities. Further, regulators also push the market towards standardisation. The European implementation of Basel III, CRD IV offers tight definitions based on which securities provide for regulatory capital relief. It also imposes on the way security wording has to be monitored. A legal opinion from a neutral party is required for each security document to confirm enforceability and legal effectiveness on a regular basis. Having to monitor policies with different wording usages might be costly for the Trade Finance business.

Also, IRBA requirements on rating of insurance companies might lead to insufficient reduction of risk weightings. Insurance companies might seriously consider cooperating with banks on this issue and increase their lobbying efforts with regulators in order to make sure that their products are properly taken into account. The Insurance Committee of ITFA will support its bank and insurance members to meet these new challenges and to reunite forces. For any questions, suggestions or initiatives please contact Silja Calac-Schneider at silja.calac-schneider@itfa.org

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Best Wishes and Great Times, Per!

We send Mr Per Fischer, Head of Financial Institutions covering CE, CIS, Russia, Turkey, Baltics and Mongolia every good wish on his retirement from Commerzbank after 28 years of service and wish him continued personal and professional success and happiness in his next phase and adventure in life.

Message from the Chairman

Paolo Provera, Chairman ITFA / General Manager, ABC International Bank Plc – Milan Branch

Dear Members and Friends,

As you will have read across the trade media, our annual conference in Barcelona was a great success and this is thanks to you. I wish to express my heartfelt thanks to each and every one of you for your trust and vote of confidence in the Board, and equally, for making our forum a dynamic business environment of reference. 

We are already working hard on the organization of the 2015 ITFA Conference, which will take place in Dubai in late October. We will once again be ready to offer to our members a valuable contribution on relevant market topics and to build again a stronger and more extended forum for networking. Mark your diaries!

We continue to strive to be a partner for you in business, deal generation and best practice, driving trade in the emerging markets and to this end I hope you will enjoy this, our second newsletter.

With my best wishes,

Paolo Provera

Barcelona: The Success and the Highlights

The 41st Annual Forfaiting Conference

It was at Barcelona that the new bigger and better The International Trade and Forfaiting Association was launched! As Paolo Provera, the Association’s Chairman said the organisation would now be even more of a facilitator for global trade. 

ITFA will seek to spread knowledge about global trade developments and global best practices (the ITFA’s” know how”), offer networking platforms networking to facilitate both deal-making and career development and offer dispute resolution through conciliation and arbitration. It would also work closely with organisations like the ICC Supply Chain Forum which were now emerging as critical to global trade.

The Barcelona conference was attended by 173 participants representing 35 countries reflecting the ITFA’s broad global reach and access to expertise. For the complete set of presentations click www.itfa.org.

For GTR News report on the Barcelona Conference and the revamp of the ITFA click  http://www.gtreview.com/trade-finance/global-trade-review-news/2014/September/IFA-becomes-ITFA_11947.shtml

For TXF News report on the Barcelona Conference and the revamp of the ITFA click http://www.txfnews.com/News/Article/3201/Ambitious-ITFA-revamp-looks-to-the-future

For the report on the Russia and Iran sanctions from TFR with a quote from Grant Eldred’s presentation at Barcelona click 

http://www.tfreview.com/news/legal-regulatory/latest-useu-sanctions-puts-russian-energy-exploration-and-lending-deep-freeze

Message from the New Board Member

Luiz Simione: MD, Global Head of Forfaiting & Risk Distribution, GTRF, HSBC Bank Plc 

I am delighted to be to be appointed to the ITFA Board with responsibility for institutional relations. 

My role is consistent with ITFA’s ambition to become a stronger representative of the Forfaiting and Risk Distribution industry. The aim of the “Institutional Relations” function is to actively cooperate with other subject matter experts and associations (such as the ICC, BAFT and Supranational Institutions such as the EBRD) and share best practices, participate in working groups and coordinate amongst regulators to ensure an outcome that is satisfactory to all industry stake holders (including regulators). 

I am writing to you directly from the USA where I attended Sibos conference in Boston. Most of the participants here articulated the demand for more training in Trade instruments, focusing on the secondary market, and the relevance that regulatory aspects have in their current business environment. Once I had the chance to talk about ITFA and our aspirations to represent even more the Trade Finance market, the reaction was very positive. Though most of participants demonstrated concerns about volumes, margins compression and the macro-economic environment, they still believe that international trade remains a solid proposition for financial institutions and ITFA can assist them developing that business. I am excited about the challenges ahead and will devote all the necessary energy to achieve our objectives. 

With my best wishes,

Luiz Simione

Message from the New Board Member

Damian Austin: Director, Head of Trade Finance Syndications, Corporate Banking Origination, Barclays

I was delighted to be voted onto the ITFA board last month and I am sorry I was unable to attend the conference. As most of you will know, I was otherwise engaged having become a father for the second time, so had a valid excuse for my non-attendance

I am very pleased to be given the responsibility of looking after the ITFA Regions, something I am hoping to bring energy and drive to. Having been an active participant in the market for nearly 20 years, I will look to bring the knowledge and industry contacts I have gained during that time to the table.

For me personally, the ITFA represents a voice across the industry and wider trade finance markets and is a platform not just for marketing and networking but also thought leadership, promotion of best practice and personal and professional development.

So what is on my agenda at this time? Like many of you, ongoing and ever-changing banking regulation is a key focus for me. These proposed regulatory changes may result in a number of unintended consequences for the trade finance industry, and it is therefore essential for us to have a voice as an industry around such matters.

ITFA has therefore taken the initiate to help lead discussions and provide support in lobbying on several regulatory topics including Dodd Frank and Capital Requirements Regulations (CRR) under CRD IV, both of which have specific reference to ITFA members. I would therefore encourage all members to reach out to ITFA, through their Regional Committees, when such issues arise.

With best wishes 

Damian Austin

Retirement from the Board of the ITFA

Sema Zeyneloglu, Global Head Financial Institutions EM at Rabobank

Sema Zeyneloglu retired from the ITFA Board after three terms of service. Her successful career has developed in new directions and has left her less time to devote to ITFA. She does not leave the association behind however. In her speech at ITFA’s AGM she expressed her continuing support for the association and her continued willingness to help with new projects in the future.

African Simbas are ready to roar: What makes Africa the ‘hot’ continent?

Dr Benedict O. Oramah, Executive Vice President, Business Development & Corporate Banking at AFREXIM Bank

Africa is Forfaiting’s New Frontier! This was the crux of the message delivered by Dr. Omrah who highlighted that forecasts indicated that African economies would grow by an average of 5.5% to reach US$10.4 trillion in 2050 with trade the major driver of growth, significantly with Asia. African trade was expected to rise by about 7% per annum to US S 2.1 trillion by the year 2020 with about 40% being with China and India. Intra-African trade, too, would exceed 16% of the total trade in 5 years, he said. Cross-border trade and investment flows that had been long suppressed by socio-political challenges and customs procedures have seen a rebound over the last decade, he pointed out. FDI inflows, which stagnated at around US$9 billion, have grown four-fold in a decade, consistent with the kind of FDI inflows that propelled Asia in the 1980s.

Dr. Omrah highlighted the changes across the industrial and agricultural spectrum across the continent pointing out that bankers would soon be required to finance cement, fertilizer and similar exports from West Africa and elsewhere.

The opportunities therefore were significant in areas like:

1. Large pre- export financing deals in the coming years as investments go into agriculture and heavy industries

2. Credit insurance, especially if the credit insurance market expands its risk appetite for non-traditional markets.

3. Forfaiting and factoring which was expected to grow from current volumes of US$23 billion in 5 countries to US$35 billion in 15 countries by 2017. 

He highlighted that, as with Asia, Africa is today a beneficiary of many initiatives to promote African trade, including AGOA, EU-ACP initiatives, etc. Further access to Asian markets is becoming an important factor. Not only does the Asia region have a large population, its effective market is growing — due to an expanding middle class — and the region’s success in addressing poverty. A striking feature of the recent growth performance is Africa’s relative resilience and robustness to external shocks. Relative to the contractions suffered during the early 1980s and 1990s on account of the Latin American debt crisis and the Asian debt crisis, Africa was one of the few developing regions that weathered the global financial and economic crises that broke in 2008/9, Dr. Omrah said. For the complete presentation please click www.itfa.org