Trade Bodies Politics Don’t Help Banks Move the Needle
Traditional trade finance at many banks is seeing revenue collapse, margin compression, increased compliance costs, an unattractive employment career for millennials, layoffs and an actual reduction in trade volumes (not just from commodity values declining but actual trade volumes). I have heard from bankers that their revenues are down 40% or more. I could go on, but it’s not a good story.
So how do industry bodies react? By continuing to be totally political to protect their image and look like they are helping the industry, when in fact actions are not moving the needle at all.
The other week, the International Chamber of Commerce came out with its supply chain finance definitions after a two-year exercise with a number of bodies (BAFT, ITFA, FCI). I’ve written about this before.
While I am all for training and education for the trade business, I found this to be more a political exercise by all the parties involved. I showed my wife the first page defining various receivables purchase SCF techniques, and she said receivable discounting has the exact same definition as forfeiting. (Note to readers: A much better read on my opinion is Asset-Based Lending: A Practical Guide to Secured Financing.)
The reality is new lending techniques are developing because of what is happening in banks and how credit is being reformulated through new platforms, channels and whole new companies. It is about access to clients who need services that involve intermediation, which includes flows of data to support asset transfer, and how that happens is highly bespoke and customized.
Another popular activity is holding supply chain finance conferences where the same people attend with little or no corporate attendance. I have had several bankers tell me they don't go to those anymore.
Industry bodies need to spend time on what will move the dial. These are not good times for trade bankers. Many small and regional trade bankers are like deer in headlights. Sadly, by having more and more small and regional banks struggle in the business, many will end up finding key business decisions being made by executives too scared to undertake trade finance.
The fact that many banks in “trade” are really doing a put on the their governments through various ECA schemes or just buying risk from the big banks because they have no origination points to the fact that many companies continue to be underserved when it comes to international trade. And many times even the banks themselves are so silo-driven that foreign exchange is over here, foreign receivables over there and our letter of credit department over there.
There are no easy solutions. Times are difficult for trade banks, but instead of playing politics, we need real leaders who are going to be transparent and do initiatives that ultimately help companies do cross-border business. This involves helping banks change credit policies that make it more helpful to fund cross-border transactions by putting together groups of companies, bankers, insurers and other risk mitigators to have real discussions. Or they could be helping companies figure out the new world of digitization to help companies understand how buying and selling is changing cross-border. Think about how Amazon Business and Alibaba are presenting both opportunities and challenges. Or there have been attempts in the past by private equity firms to develop a shared service center operating model for those banks that could not afford to do their own processing. There are many things that can be done.
No individual bank will step up to do this. This is why we need strong industry bodies that will.
So how do industry bodies react? By continuing to be totally political to protect their image and look like they are helping the industry, when in fact actions are not moving the needle at all.
The other week, the International Chamber of Commerce came out with its supply chain finance definitions after a two-year exercise with a number of bodies (BAFT, ITFA, FCI). I’ve written about this before.
While I am all for training and education for the trade business, I found this to be more a political exercise by all the parties involved. I showed my wife the first page defining various receivables purchase SCF techniques, and she said receivable discounting has the exact same definition as forfeiting. (Note to readers: A much better read on my opinion is Asset-Based Lending: A Practical Guide to Secured Financing.)
The reality is new lending techniques are developing because of what is happening in banks and how credit is being reformulated through new platforms, channels and whole new companies. It is about access to clients who need services that involve intermediation, which includes flows of data to support asset transfer, and how that happens is highly bespoke and customized.
Another popular activity is holding supply chain finance conferences where the same people attend with little or no corporate attendance. I have had several bankers tell me they don't go to those anymore.
Industry bodies need to spend time on what will move the dial. These are not good times for trade bankers. Many small and regional trade bankers are like deer in headlights. Sadly, by having more and more small and regional banks struggle in the business, many will end up finding key business decisions being made by executives too scared to undertake trade finance.
The fact that many banks in “trade” are really doing a put on the their governments through various ECA schemes or just buying risk from the big banks because they have no origination points to the fact that many companies continue to be underserved when it comes to international trade. And many times even the banks themselves are so silo-driven that foreign exchange is over here, foreign receivables over there and our letter of credit department over there.
There are no easy solutions. Times are difficult for trade banks, but instead of playing politics, we need real leaders who are going to be transparent and do initiatives that ultimately help companies do cross-border business. This involves helping banks change credit policies that make it more helpful to fund cross-border transactions by putting together groups of companies, bankers, insurers and other risk mitigators to have real discussions. Or they could be helping companies figure out the new world of digitization to help companies understand how buying and selling is changing cross-border. Think about how Amazon Business and Alibaba are presenting both opportunities and challenges. Or there have been attempts in the past by private equity firms to develop a shared service center operating model for those banks that could not afford to do their own processing. There are many things that can be done.
No individual bank will step up to do this. This is why we need strong industry bodies that will.
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