The high costs of offering global trade finance may cause some large lenders to scale back and open the way for more specialised and regional lending, JP Morgan’s Natasha Condon has said.
“Being a big international trade bank is really expensive. It’s getting more expensive every year, and that means there are going to be fewer of them,” Condon, the US lender’s global head of trade sales, said at an International Chamber of Commerce event on March 25.
Regulatory requirements and know-your-customer rules are different in almost every country, driving up expenses for lenders that finance global trade, said Condon, who is also the bank’s Emea trade head.
Compliance costs for banks have soared over the last two decades, as lenders tried to avoid eye-watering fines imposed on the likes of BNP Paribas, Deutsche Bank and HSBC over sanctions and anti-money laundering breaches, chiefly in the US and Europe.
“You’re going to get a smaller number of the big international banks in trade finance, and you’re going to get an increasing number of really excellent regional and local banks who are incredibly good on the ground in a particular geography,” Condon added, noting it was her personal view.
“There is really obvious macro-level pressure at the moment towards consolidation in the trade finance space.”
Many large international trade lenders, including JP Morgan, do not disclose their revenue from trade, or the costs of operating trade units.
HSBC and Standard Chartered, two large trade lenders with a strong focus on Asia, have reported relatively stable revenue from trade over the last ten years.
HSBC’s global trade solutions revenue of US$1.99bn last year, and Standard Chartered’s trade and working capital income of US$1.27bn, are similar in nominal currency terms to their revenue in 2014.
Citi, another globe-spanning trade finance provider, has reported growth in its trade and treasury solutions unit in recent years, but the figures also include income from cash management and payments.
Condon said a landscape comprising a smaller number of mega-banks and more specialised lenders “creates a massive opportunity for collaboration between banks that didn’t exist before”.
“In fact, it creates a necessity for collaboration between banks, because there is going to be more differentiation between trade finance banks and what they are trying to do.”
The UK in particular is home to many mid-sized lenders which specialise in financing trade with specific countries and regions, especially nations where open account trading is not widely used and there is strong demand for documentary credits and loans.
Condon also pointed out that the traditional role played by trade finance banks could be shaped by the rise of tech companies and enterprise resource planning (ERP) providers such as Oracle, Workday and SAP, which are increasingly eyeing opportunities to use their relationships with millions of corporates to embed financing into their products.
SAP purchased supply chain finance provider Taulia in 2022 and has begun rolling out products that offer working capital solutions to its corporate user base, including virtual cards issued by Lloyds, announced this week.
JP Morgan and Taulia also have a strategic partnership, and the bank last year expanded an arrangement with Oracle to include integration of the bank’s trade and working capital products.
Condon pointed out that “ERPs are already in the offices of all our corporate clients”.
“We all need to figure out what a trade finance bank is supposed to be in the near future, because that is changing quite rapidly,” she said.
“And if we’re not careful, we get reduced to being just dumb funding and nothing more, while somebody else soaks up all of the profitable stuff.”
