Asian banks step in as EU banks exit trade finance
DBS’ Ken Stratton and Citi’s Ravi Saxena concur that Asian banks are taking up the slack, resulting in greater opportunities and increasing margins.
ABF: There are reports of many European banks exiting trade finance. How true is this and are Asian banks taking up the slack or are terms tightening?
Citi: Ravi Saxena, Managing Director, Asia Pacific Trade Head, Global Transaction Services
Definitely terms have tightened in the last couple of months. Asian banks are stepping up and taking part of the slack – but it also offers opportunities to well capitalized banks. When you look at trade finance, ultimately you’re financing a client’s working capital. And while the natural currency does tend to be to finance cross-border trade in US dollars, some Asian banks can also meet the requirements through their local currency financing. There are some sectors where the pinch feels a little bit more. But I think as a whole, I don’t believe that there is any problem of large proportions. Yes, it is an issue, but I think there is capacity being made available.
It is also interesting to note that Interest rates are so low that even if the spreads are widening, companies can still access relatively cost effective US dollars. If you go back to 2007, US dollar Libor was around 5%. Today, because LIBOR is so low the aggregate cost of borrowing is still relatively inexpensive despite the wider credit speeds.
DBS: Ken Stratton, Global Head of Sales, Global Transaction Services
We have heard from our clients that a number of European banks are re-looking their trade portfolios and their trade sales resources based in Asia. Feedback is that they are focusing on their core clients, and directing funding and relevant trade resources accordingly. This has created some great opportunities for the Asian banks, and margins are increasing in tandem.