Driving the TradeFinance Agendain Europe

I n this month’s Executive Interview, Thomas Dusch ofUniCredit talks to Helen Sanders, Editor, about some of thetrends he is seeing in the way that trade finance and

working capital financing solutions are being used by Europeancorporates.

What trends are you seeing in the use oftraditional trade finance instruments inGermany and other parts of Europe?

As an exporting nation, the guarantee business has always beenimportant in Germany, whether classic bonds, performance bondsor other variations, reflecting the industrial diversity across thecountry. While trade continues to be strong, we are seeing a shiftin trading counterparties. For example some export business hasdeclined, while some has become more complex. At the sametime, new markets are developing, however, such as in Africa andMiddle East, and more recently emerging markets in Asia, such asPakistan, Bangladesh and Myanmar. As new markets open up,letter of credits are more important than ever before, ascorporations are often doing business with less familiarcounterparties. Amongst large multinational corporations, import letters of

credit (LCs) are less important, as they often buy on open account.In contrast, export LCs remain essential, and their use continuesto grow, for similar reasons to the increase in guarantee volumes.

To what extent has the trade finance marketbecome more competitive in recent years?

The trade finance market, including guarantees and LCs is a highlycompetitive market, and this has increased since the global financialcrisis as many banks have rebalanced their activities away frominvestment banking in favour of corporate and commercial banking.Many banks are keen to establish a presence in Germany, and tradefinance is typically seen as a low-risk activity with low barriers to

An ExecutiveInterview withThomas Dusch,ManagingDirector, Headof TradeFinanceInternationalSales Germany,UniCredit

executive interview

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Reprinted from TMI | www.treasury-management.com

executive interview

entry. Furthermore, banks are far lessreluctant to lend to other banks than theywere during the crisis, so correspondentbanking and inter-bank lending isincreasing, and banks want to use theircredit lines. Although growing competition is putting

pressure on pricing, trade finance has notbecome a commoditised product offering.Corporate treasurers, finance andpurchasing managers recognise theimportance of high-quality trade financesolutions that are structured specificallyaccording to their needs, provided by a bankwith proven experience and expertise, andtypically consider these issues a higherpriority than price when selecting theirtrade finance banking partner.

With working capitaloptimisation becoming ahigher priority, what impacthas this had on corporatedemand for trade financeand working capitalsolutions?

Just as cash management has seen anenormous expansion in the range and valueof services that banks offer to theircorporate customers, there has also beenrenaissance in the breadth and diversity oftrade finance and working capital solutionsthat are available. As corporate customers ofall sizes and industries focus on workingcapital and unlocking value from the supplychain, solutions such as receivables financeand inventory management are becomingincreasingly prevalent. While UScorporations were amongst the first toadopt these solutions, particularly as tradingreceivables was more common than in otherregions, corporations in Europe are nowbecoming more proactive in working capitaloptimisation.

You mention that the US ismore advanced in the use ofworking capital financingprogrammes: what otherregional variations in theuse and demand for thesesolutions would youhighlight?

Regulatory, cultural and market conditionsall play a part, so programmes that havebeen successful in one region can often notsimply be replicated in another. For example,

as working capital financing is currentlymore advanced in the US than in Europe atthis stage, financing levels are typicallyhigher, resulting in more syndicatedprogrammes, while at this stage, workingcapital financing programmes in Europe aretypically bilateral. With the EU late paymentdirective now implemented in most EUcountries, supply chain financing might gaineven more momentum. However, the valueproposition of supplier financing, togetherwith other working capital programmes, willvary according to the commercial model,industry and priorities of each enterprise.

How is UniCredit respondingto, and anticipatingchanging market trends?

UniCredit has extensive experience in tradeand working capital finance, developed overmany years and in many jurisdictions. TheCEE region is precisely the kind ofenvironment in which banks can guide theircorporate clients. The region has manyopportunities for investment; it is relativelyfree from debt, the middle class is growing,and disposable income is increasing.Opportunities are therefore abundant forcorporates in the CEE region. Yet they willhave to overcome serious challenges withrespect to both risks and regulations.Guiding and advising them on both is justone part of an extensive concierge rolebanks such as UniCredit can play. UniCredit continues to play a pioneering

role in the development of the digitalagenda, which includes robust, secure,flexible platforms to support high-volumeworking capital finance programmes such asreceivables and supply chain financing.These are closely integrated with customers’internal systems such as the corporate ERP,facilitating efficient, streamlined financialprocesses. While we have developed best-of-breed products and services, we take asolution-based rather than product-basedapproach, providing tailored solutions to ourcustomers that are designed to meet theircurrent and anticipated needs.

How do you see the tradefinance environment forcorporations in Europeevolving over the next 12 to24 months?

How customers’ trade and workingcapital finance needs evolve, and how

banks respond to these needs, will largelydepend on how economic conditions inEurope develop. Although the previouslyrapid rate of growth in China has becomemore modest, it is likely to remain animportant focus for corporations in allindustries. However, many corporationshave moderated their growth ambitionsand are expanding their strategies toincorporate Africa, Middle East andemerging Asia. The weak euro will helpinternational exports for the time being;similarly, the low interest rates are likelyto continue. Financing facilities are also changing.

Whereas in the past, most treasurers setup uncommitted lines with their bank,there is now a trend towards committedlines, at least for part of a company’sshort-term finance requirements. Theseprovide greater certainty and allowtreasurers to lock in relatively low ratesfor three to five years, irrespective of thedirection of interest rate moves over thisperiod. Finally, with the digitisation agenda

becoming more important, electronicinstruments such as the Bank PaymentObligation (BPO), a digital instrument forprocess automation, payment riskmitigation and liquidity provisioning thatsupports open account trade, are gainingtraction. By enabling electronic tradesettlement, BPO offers the convenience,speed and automation of open accounttrade with operational and payment riskmitigation of an LC. Over the comingyears, we anticipate that BPO willincreasingly become the instrument ofchoice for corporations that currentlyconduct international trade via openaccount as they expand their businessinto new markets and form relationshipswith new counterparties. �

UniCredit has

extensive

experience in

trade

and working

capital

finance,

developed

over

many years

and in many

jurisdictions.

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