Trade Forecast: Cloudy with a Chance of Protectionism
Platt, Gordon, Global Finance
Best Trade Finance Banks
Bankers are optimistic that financing will be available to support projected growth in world trade, but regulatory change and currency wars have them on edge.
Trade finance is the fuel that powers the engine world trade, which is helping to pull the world economy out of recession. That fuel could get significantly more expensive, however, if the backers of Basel III get their way, trade bankers say, and world economic growth could suffer as a result.
A proposed increase in capital requirements will have a deleterious effect on the cost and availability of trade credit, bankers say. It will also throw sand in the gears of export initiatives, such as President Barack Obama's plan to double US exports and create jobs. Every $1 billion of exports supports 7,400 US jobs, according to the Export-Import Bank.
Trade bankers contend that the short-term and self-liquidating nature of trade finance, which is often collateralized by the underlying shipment of goods, makes it one of the safest forms of lending. They are lobbying regulators to heed recommendations of G20 leaders to be flexible in applying new rules, so as not to disrupt global trade. Emerging markets are particularly vulnerable because they rely more heavily on letters of credit to facilitate trade. Bankers say current prices for trade finance cannot be sustained if banks are forced to pay more for their capital.
The currency wars are a bigger threat to trade, according to some bankers. They worry that protectionist forces will gain the upper hand if export-dependent economies seek to defend market shares through competitive devaluations. The controversy surrounding the undervalued Chinese renminbi and intervention by the central banks of Japan and Switzerland to halt the rise of their currencies show that there is a fine line between market-smoothing operations and currency manipulation, trade bankers say. Beggar-thy-neighbor currency policies could result in a trade war, leading to higher tariffs and other barriers to international commerce.
Meanwhile, the trade finance business is continuing to consolidate. The growing trade flows between developing economies require successful trade banks to have extensive networks, with on-the-ground capabilities linked to global platforms offering a wide range of trade services and financing. The best trade banks are constantly innovating and enhancing their trade products to meet the evolving needs of their customers.
Global Finance editors, with input from industry analysts, corporate executives and technology experts, selected the best trade finance banks in 71 countries or regions. Criteria for choosing the winners included transaction volume, scope of global coverage, customer service, competitive pricing and innovative technology. Risk mitigation has become an increasingly important concern in the wake of the global financial crisis. As global supply chains become ever more complex, they are susceptible to a wide range of risks.
The best trade bankers go the extra mile to understand their clients' businesses. This enables them to offer useful advice on potential risks and how to manage them. The top banks also are adept at using special programs available through export credit agencies. Guarantees that lower the cost of working capital, export-credit insurance against nonpayment, and loans to assist foreign buyers are available. The winners are those banks that best serve the needs of corporations as they engage in cross-border trade.
Citi provides trade finance services in 86 countries, with a market-leading network that handles more than two mulion cross-border trade transactions a year. "Our globality as well as our local expertise have helped us to continue to meet our clients' trade-financing needs and garner market recognition for Citi," says John Ahearn, managing director and global head of trade, who is based in New York. …