Trade Finance is
an old-style financial product which, in 2014, is very much back in
fashion. As Asian businesses trade more across regional borders and
around the world, demand for funding these trade flows is increasing
rapidly – and banks are responding.
And for the regional banks, it is more and more important to have a
significant trade finance function. Happy trade finance customers are
much less likely to take their business elsewhere, and the trade
relationship can be the bedrock of cross-selling other products. It is
also, relatively Basel III and capital friendly.
East & Partners Asia analysis shows that $1 in trade finance fee
income can bring in an additional $1.70 in foreign exchange and cross
border payment fees, and another $2.25 in other transactional banking
revenue for providers if executed well. That is almost four times
uplift.
In this context, East has just launched its inaugural Asian Trade
Finance (ATF) report, which details the trade finance needs and
behaviours of Asia’s Top 1000 corporates (ex-Japan).
The report is also a fascinating insight into the competitive
positioning by the banking providers, those domiciled in Asia and also
global banks active in trade.
The report clearly shows how certain banks are using their trade
business as something of a “Trojan Horse” to penetrate the Asian
region. Knowing that trade is a “sticky” product offering cross
selling opportunities, some new entrants to Asia are focussing on
trade as their way into the region, and as a strategy to sell other
non-trade services to their clients.
East has a longstanding Asian Transaction Banking (ATB) program and a
comparison between primary transaction banking and primary trade
finance market share is a revealing exercise. |
It is clear from
this comparison that some banks with entrenched transaction banking
market share are having their trade finance market share eroded by
poaching from newer entrants.
Australia’s ANZ, for example, has modest, albeit growing transaction
banking market share but is building a presence in trade finance, both
in terms of primary and secondary relationships. Another major
regional bank, with very healthy transaction banking market share, has
a primary trade finance market share around half of its transaction
banking share.
The ATF report also offers some clues as to how ANZ has managed this.
The trade finance customers are asked to rate their satisfaction
levels with providers across 20 different attributes, and while ANZ is
mid to low ranking in most of them, it is ranked first for competitive
pricing and value for money.
Anecdotally, many have been saying that ANZ is in part buying its
Asian trade expansion by sacrificing margins but corporate customers
aren’t complaining.
Across the whole of the market, the dynamic is one of fierce
competition for trade finance business. Several of the US banks also
enjoy higher trade finance than transaction banking market share,
which suggests that they are following US corporates up into Asia
primarily with their trade solutions.
East will go back into the market with the next ATF report in around
six month’s time for this bi-annual program. That second report will
deliver critical trending data on these competitive market dynamics
and, read in conjunction with the ATB program, will deliver a
compelling and much more comprehensive picture of Asian bank
positioning. |
