EXECUTIVE INTERVIEW: Neal Livingston, Chief Head of Global Trade and Transaction Services, CBA
- Singapore is an increasingly important hub from a GTTS perspective
- Being willing to service clients in their time zone and in their own language is vital to our business
- The Institutional trade finance experience will become the norm across all segments
- Is there adequate and sufficient capital in the banking system to support ongoing growth in global trade?
Neal Livingston is the recently appointed Head of Global Trade and Transaction Services (GTTS) at the CBA. He is in conversation with Lachlan Colquhoun, East’s Head of Markets Analysis.
Can you describe your role at CBA?
GTTS encompasses a number of constituent businesses. The easy part to understand is global trade. We provide the full suite of trade products and services to our clients globally, that is, across all segments and geographies, and all product types, both traditional and open account, bonds and guarantees and structured trade.
The other part of the portfolio is our international payments business, which is offering the Group’s Vostro and clearing capabilities in our domestic franchise markets to international institutions, predominantly banks. We also manage the ancillary or transactional foreign exchange that is linked with international payments.
The final, not necessarily the last piece, is network management – managing the outbound international payments that the Group generates which require a servicing partner elsewhere in the world. These are principally Australian dollar flows going into Asia, US, UK, Europe and Canada, and managing the buy side of those relationships with financial institutions across the network.
So these are my businesses under GTTS – global trade, international payments, ancillary FX and network management.
You are working between Sydney and Singapore. What is the significance of Singapore as a choice?
This is intentional. The bank has a number of global heads based in either Singapore or London including Heads of Foreign Exchange and Natural Resources– both key business partners for GTTS.
From a GTTS perspective, Singapore is an increasingly important hub, not just for underlying trade flows occurring throughout Asia but also, to some degree, as an intellectual hub for a lot of the thought leadership. Many of the business heads for similar franchises are also based in Singapore, so it was a natural place for the Group to consider placing a global head such as myself. We have a full branch presence in Singapore. It gives us access to that market, to the clients based there and also proximity to our business across Asia.
We have a presence in mainland China. A Beijing branch was recently opened. We also have branches in Shanghai, Hong Kong, Tokyo and India. We also have an international financial services division with presence in Indonesia and Vietnam. Singapore is therefore a natural hub to reach and have access to those parts of the franchise.
CBA is a domestic powerhouse and not particularly known for its international transactional banking business. Where do you think the bank is in the evolution of building out that business?
Commonwealth Bank has spent a considerable part of the last two years looking at its strategy and market positioning, in particular on how we might participate in global trade more actively. As the Group’s customers start to become more connected with Asia, and as we build out some of our sector and industry strategies, this was a natural adjunct to those strategies. The Group has set a number of priorities in terms of how we would like to grow our business. We see considerable domestic and international opportunities to doing that.
Internationally, we are focussing on a small number of industries and sectors, where the Group has institutional capabilities that can be leveraged. These will not surprise anybody; areas such as natural resources including agriculture, financial institutions and also infrastructure and certain transportation sectors. These are industries that the Group has been involved in for a long time and it makes sense for us to leverage our knowledge and reputation in these industries. Global trade is one of the key products that will fuel that ongoing international expansion, and that was the logic of bringing me in and bringing more focus to the GTTS business.
We are keen to build this business in a sustainable and client-focused manner, consistent with the Group’s reputation that once it chooses to participate in a particular business segment, it does so with clarity of purpose and commitment.
Is there anything you think really differentiates your offer, and what you are putting to your clients?
There are a couple of key points which resonate with the clients I have spoken to. One is that the Group has made significant investments in technology across some traditionally very challenging areas for large institutions to solve – and hence has a reputation and willingness to provide the right technologies at the right time. If you look at what we’ve done in terms of our core banking and real-time capabilities, that is clearly sought after and valued by our clients. We will continue to leverage those investments going forward.
The other is our service proposition. In GTTS in particular we deal with a large range of sectors, from SMEs all the way through to advanced institutional clients. Being willing to service those clients in their time zone, in their language, and ideally proximate to your counterparts in that client’s organisation, is something we’ve had in our business and in the Group for some period of time. It’s something we will continue to retain and enhance, because we get very good feedback from our clients. They value the interpersonal relationships and the access and proximity – the ability to turn business around very promptly and reliably.
Technology and service are the two big ones for GTTS. It is also about how you leverage your products and put a relevant solution in front of clients, making sure that it is appropriate for their needs. We are investing time across all sectors to ensure we understand our clients’ working capital drivers, how they are managing their supply chain and what risks are attendant to those flows that they are trying to manage. We are doing these so the products and services we deliver to them are highly relevant and fit for purpose.
A lot of the customers you have here domestically will bank with someone else once they go offshore. In full service international transaction banking, for example, our research documents clearly how the Big Four are losing market share in that area over a period of five years. Is the strategy to follow the trade flows and add other product onto the trade relationship?
Your observation is spot on. We are investing in this business both to grow and to protect the franchise. We are seeing a number of clients internationalise their treasury operations. Their businesses are becoming more international; they are becoming more connected with Asia in particular. We need to step up into that space as an institution to continue to be relevant to our clients. So that’s clearly a strategic imperative: to continue to follow your clients – they are moving therefore we need to move with them. This is a core reason for pursuing this business.
We are also client and industry led in our approach; it is not necessarily about following the trade flows per se. Clearly, the biggest flow is between Australia and China for commodities and exports businesses. We are a very significant participant in those flows; and that is one lens through which we view our business and our opportunity. But we will only pursue opportunities where we have a clear customer proposition.
GTTS is a relationship product suite, and it is part of building a more comprehensive end-to-end relationship with the client.
And you need to understand their supply chain to be able to do that?
Absolutely. The supply chains are increasingly quite complex from end to end and five, six or seven different entities or value-adds can be involved along the way. Being clear about which part of the physical and the financial supply chain you add value in, is key.
And that is going beyond the commodity isn’t it? It is using what is in the product suite to tailor them and mix and match at the most appropriate moment in the supply chain.
The tools we have at our disposal are equally applicable to primary exports, manufactured goods, retail and so on. It’s very much driven by the client and what they are looking to do with their buyers and suppliers.
Whilst financing will continue to be a key driver, we are increasingly seeing it’s about assurance of supply; it’s about managing information – an awareness and visibility about where your goods are. Have they left the dock? Have they arrived? There is a whole range of ancillary information that can be enabled through trade finance, which is very important to customers so they can run their businesses.
Some of these supply chains are very taut. The SLAs and the delivery requirements have been squeezed down extremely tightly. Any small breakage– a delay when the ship doesn’t leave the port on time – ripples across the entire supply chain all the way to the end user.
We, as a banker and a financier, need to understand and help our customers manage these risks. Often that’s about information and awareness so that they can know what has happened and can react accordingly.
One thing I find interesting in our research in looking at trade finance, is that the structured products and the bespoke products are largely available just to the institutional end of town and as you come down, smaller businesses are using working capital to finance their trade flows. But they don’t want to be doing that. They want to engage with Open Account and other structured products. Do you see that as a challenge? Is it simply a question of human resources on the bank side to make those relationships work?
I agree with your synopsis but there are a couple of drivers and reasons why that will change, that is, the institutional experience will become more the norm across all segments. One reason is the cost of capital is going up for all banks and that is not unique to trade finance. The focus on how an institution supports its clients and uses its capital intelligently is going to become a much more important part of the client conversation than it has historically been. As that happens, the focus on short term, self-liquidating, capital efficient services, such as trade finance, will grow in popularity. That is one big driver of change.
Secondly, I think bankers are becoming smarter about making things simple. I believe it is up to the banks to make it easy and simple, so that customers can understand what the proposition is – allowing them to get on with running their business without overcomplicating how a product works.
There’s a third factor which is more medium to long term; the predictions that there is a shortage of bank capital to support the continuing growth in global trade going forward. Global trade has been growing at roughly twice the rate of global GDP. Some would say this is not sustainable but there are drivers and reasons why that is the case. So, is there adequate and sufficient capital in the banking system to support ongoing growth in global trade?
A number of models suggest that there is a gap and clearly that gap needs to be filled. One school of thought is that we will increasingly see trade finance treated as an institutional asset class; particularly in Europe/UK, where a number of banks are focussed on leading this change which will also bring about changes in the way the product works. This will also require banks to focus on intermediation not just asset gathering.
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