Mathieu Le Brigand, global head of supply chain finance, BNP Paribas Please wait... , in Paris
TXF: What state do you view the trade finance sector in at the present time – and how is your business developing?
The trade finance market has picked up quite strongly following the global financial crisis (GFC) of 2008-2009, and this has largely been pushed along by emerging market trade – and in particular, the trade taking place in the APAC region. Trade finance is, of course, very closely related to the global economy and where we have seen growth in trade flows – for instance intra-Asian – we have also seen the corresponding growth in trade finance activity.
I don’t believe that there have been many banks withdrawing from the market. Most banks have protected trade finance versus other asset classes in their deleveraging efforts. But what we do see is more banks coming into trade, particularly from Asia, to help support the trade flows. Now there are a lot of local players who are very strong in the local markets.
As far as pricing goes, there was an increase in pricing immediately following the GFC, but since then it is clear that there has been a continuous downward trend – slowly but surely.
TXF: During the GFC (global financial crisis), trade banks overall failed to provide finance to the market as they had done so in the past. Since then, many banks have largely focused on core relationship business. Is this the new norm? What lessons have been learned?
At the end of the day, it is a question of supply and demand. At the moment there is huge liquidity being supplied by the central banks – and this supply is contributing to driving prices down. Most banks have identified trade finance as central and core to their activities, and I don’t see them exiting from this position. But to provide trade finance you need a good environment.
"Clearly, trade finance is an attractive, low risk product through its entire cycle, and the latest crisis has demonstrated this quite powerfully once more. That attracts a lot of interest, and I think that interest, from banks and other investors, will continue to grow."
Yes, lessons have been learned from the past – and in particular relating to the management of client relationships. We need to look to the long-term in our operations and be mindful that those operations directly impact the business of our clients. We finance their sales or procurements and clients are therefore very sensitive to the quality and recurrence of the solutions we provide. As trade financers we have a particular responsibility in nurturing the relationship with a client.
TXF: What do you see as the biggest hindrance to the provision of trade finance today?
The trade finance world has developed and globalised – but somehow banks are not as global as trade flows are. Some banks will only take risks where they feel comfortable. How many banks can finance short-term trade between Africa and China, for example? Certainly, it is not many. So, the real challenge is for banks to assess how they can service the new corridors opened by some of their clients. To be truly relevant in this business you need to be global.
TXF: With global supply chains ever-more complex, are the supply chain finance solutions available, and the provision of those, sufficient to meet the demands of corporate treasurers? How do you see involvement of MFIs (multilateral financial institutions) in trade and are you able and willing to partner with them in such schemes?
As supply chains get ever more complex we have greater need for credit insurance. This is one side of the business that has certainly grown markedly in recent years.
The involvement and use of the international financial institutions (IFIs) is especially important in the emerging markets. We partner with IFC and several others for transactions in emerging markets to help mitigate some of the risk. It is a very effective partnership. The IFIs are highly relevant to help banks increase their capacity.
TXF: How much is technology/tech innovation helping the provision of trade and supply chain finance? Have tech innovations delivered?
Technological innovation is a key aspect of our offering. We provide holistic working capital solutions to reduce cash trapped in our clients’ operating cycle, from inventory to payables and receivables. We also need to provide modern, flexible and customised communication channels to facilitate daily utilisation of these facilities.
Additionally, the platform needs to be capable to take on multi-bank functions. We have a proprietary system here at BNP Paribas.
TXF: How do you view the future of the availability of, cost of and provision of trade and supply chain finance in the near to medium term?
In the short-term, we need to keep in mind that the current high level of supply in trade finance is partly a function of massive liquidity in the world at the moment, and all this money is looking to invest somewhere. In the medium to long-term, I am very optimistic for the trade finance industry. Clearly, trade finance is an attractive, low risk product through its entire cycle, and the latest crisis has demonstrated this quite powerfully once more. That attracts a lot of interest, and I think that interest, from banks and other investors, will continue to grow.