(14 September 2005 – Australia) SMEs have learnt to rely on vanilla lending products such as overdrafts and term loans to support their trade activities because their banks are not talking with them about Trade Finance facilities, according to East & Partners.East’s latest six-monthly report on Australia’s Trade Finance markets shows that
just 17.4 percent of SMEs (companies turning over between $5 and 20 million per
annum) currently engage Trade Finance services and products from their
transaction bankers.
East’s report estimates the total Trade Finance market in terms of fees and
transaction charges to be worth $1043 million with the SME segment accounting
for $155.8 million of this figure. (These figures exclude lending income).
“Penetration of Trade Finance services among SMEs is still very low but this
presents a huge upside and opportunity for service providers looking to target
the segment with trade propositions,” East & Partners principal analyst Paul
Dowling said.
The report reveals that less than four percent of Commonwealth Bank’s SME
customers engage trade services from the bank. Around 10 percent of Westpac’s
customers and roughly 11 percent of National Australia Bank and ANZ customers
also engage Trade Finance offerings from their incumbent bank.
International banks Citigroup and HSBC have the largest proportion of their own
SME customers also engaging Trade Finance services.
“Australia is a trading nation and clearly there are more SMEs exporting and
importing than is indicated by the number of businesses using Trade Finance
services in the segment,” Mr Dowling said.
“It could be that banks are reluctant to offer Trade Finance facilities to their
SME customers because they’re unsure of their credit quality, particularly in
cases where a customer may not have a long history with its banker,” he said.
“SMEs looking for a line of credit to support their trading activities are
typically taking on overdrafts and term loans, which tend to solve any credit
challenges for their bankers, but these kinds of vanilla lending products offer
less flexibility for businesses,” Mr Dowling said.
East’s report shows that SMEs which are engaging Trade Finance services are not
happy with what they are receiving from their providers. This is borne out in
both poor customer satisfaction ratings and the accelerating levels of SME
businesses looking to switch (see Table below).
More than 41percent of SMEs indicate they are considering switching trade
provider.
“The SME share of the Trade Finance market is set to grow more quickly than the
overall market and it’s a segment that offers service providers much better
margins than they’re currently finding in the commercial and corporate segments.
There’s real opportunity here for someone,” Mr Dowling said.
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For more information please contact:
Paul Bartholomew
Senior Consultant
East & Partners
Tel: +61-2-9004 7848
Mob: +61-410 400 156
paul.b@eastandpartners.com