February 2014

Asian Trade Finance: Back in Fashion
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.
Satisfaction and Importance Ratings of Selected Service Factors in Trade
  Average Importance Rating Reported
1 — — — 2 — — 3 — — 4 — — — 5

(satisfied)                                    (important)
(dissatisfied)                                (unimportant)
Service Factor Satisfaction Importance
Knowledge of Customer’s Industry 2.02 1.05
Processing Accuracy 2.10 1.07
e-Trade Solutions 2.12 1.10
Value for Money 2.19 1.04
Pricing Competitiveness 2.24 1.10
Trade Credit Process 2.48 1.03

Source: East & Partners Asian Trade Finance Program – January 2014


You are receiving this newsletter because your company is a client of East & Partners or you have requested a subscription from our website. We operate a firm no spam policy and should you wish to not receive this newsletter simply reply to this message and type "REMOVE" in the subject box.

(c) Copyright 2014 East & Partners Pty Ltd. All rights reserved.