High operating costs may force large global banks out of trade finance, opening up the market for smaller, regional lenders, JP Morgan’s Natasha Condon believes.
“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.
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Differing know-your-customer processes and regulatory requirements in each country are the main drivers of the higher cost base, Condon said at the London conference.
Expenses for banks include soaring compliance costs over the last two decades, as lenders scrambled to avoid eye-watering fines imposed on the likes of BNP Paribas, HSBC and Standard Chartered and [Third bank] 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.”
Natasha Condon, US President
“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 operating costs attributable to the business.
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.
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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.
I’m actually really worried about the role that banks will have in trade finance if we don’t adopt technology at the pace that we need to adopt them.
Jacob ATKINS
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.”
Surath: Digitisation well help bring down some of the costs Natasha was talking about
I’m actually really worried about the role that banks will have in trade finance if we don’t adopt technology at the pace that we need to adopt them.
Our customers’ consuming behavior is changing, and it’s driven by their retail way… As an individual, the way we consume has changed already, which means that the customer, they are the same people who are then the treasurer, the CFOs, entrepreneurs of SMEs, etc, who are consuming they want it to be delivered in the same way.
Wow we can
Write poetry
A lot of trade finance is now done by the big techs… they don’t call it trade finance, but it is trade finance.
ERPs also looking at getting into trade finance as well. What is the role that we as a bank will play in the future? Are we going to be the orchestrator of this ecosystem, or are we going to be the dumb funder at the end of the pipe? … that is what my biggest focus is around.
Natasha: I think Surath hit one of the most critical underlying trends in the industry just then, which is that 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. 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.
