Revenue-Starved Banks See Opportunity in Financing Exports

American Banker, July 8, 2013 | Go to article overview

Revenue-Starved Banks See Opportunity in Financing Exports


Byline: Alan Kline

U.S. companies are exporting goods and services in record numbers, and many banks are responding by beefing up their trade-finance units.

Citigroup (NYSE: C) and Fifth Third Bancorp (FITB) are among the large and regional banking companies that have been hiring international banking experts and adding new services in an effort to capture more trade-finance business.

Huntington Bancshares (HBAN) recently established a dedicated international banking division and lured a top commercial banking executive away from Fifth Third to run it. Late last year Huntington was also named a preferred lender by the Export-Import Bank of the United States -- a designation that essentially allows it to finance more overseas deals.

Bankers say they are strengthening their trade-finance units because their business customers are demanding it. Domestic sales have been relatively flat in recent years, and many companies view overseas sales as crucial to sustained growth, says Sam Moore, the head of trade sales and finance at Fifth Third in Cincinnati.

"Trade is central to the needs of our client base," Moore says. "To be really relevant in today's marketplace a bank needs to have international capabilities that it can deliver."

Rajiv Goswami, the head of international banking for Citi Commercial Bank in the U.S., says the surge in exports is being driven largely by midsize firms covering a broad range of industries -- from agriculture to pharmaceutical supplies to scrap metal. Citi is aiming to meet the demand by working more closely with smaller firms -- it's already a major lender to large exporters -- as well strengthening relations with the Ex-Im Bank, the U.S. Small Business Administration and other federal agencies that encourage trade, Goswami says.

Some industry watchers worry that banks are not going far enough in their efforts to meet clients' export ambitions. Most large banks have representative offices in foreign countries -- Citi just announced plans to set up shop in Iraq, for example -- and regional banks will be at a disadvantage if they don't do the same, argues Peter Hughes, a Long Island consultant who advises banks on working with middle-market companies.

There's also concern that many community banks have been slow to develop the necessary expertise in in foreign trade and that they risk losing clients to larger banks if they don't add or properly train staff.

"More and more companies are looking to export, and banks are going to have to address their ability to provide financing," says Bill Houck, the regional director of the SBA's Mid-Atlantic office of international trade. "But for right now most community banks are sticking to what they know."

Still, at a time when all banks are starving for new sources of revenue, many see trade finance as an obvious line of business in which to expand. Total exports of U.S. goods and services hit a record $2.2 trillion in 2012 and that figure is expected to increase as developing countries such as India, China and Malaysia continue to grow. It helps, too, that the federal government has been sweetening incentives to exporters as part of the Obama administration's stated goal of increasing exports to roughly $3 trillion by 2015.

"If you are a middle-market company in the U.S., where the [gross domestic product] is growing at 2% to 2.5%, then you can either fight it out here or go to markets that are growing at rate of 8% to 10%," says Hughes, managing partner at CLB Advisory LLC in Dix Hills, N.Y. …

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