Intense competition among banks for trade finance business in Asia provides companies with opportunities to benefit from lower pricing for these important products and services.
A new report from Greenwich Associates, "Booming Asian Marketplace Offers Potential For Trade Finance Savings," finds that Asia’s economic growth and the strong balance sheets of many of its leading banks have led to a substantial increase in supply and suppliers of international trade finance—from eager lending by Japanese banks to the increasingly credible international coverage of other leading Asian regional banks. All this new capacity, and the resulting increase in competition among Asia-based providers, has driven down prices on trade finance products and services.
As most large companies expand their Asian presence they will find Asian banks have built out their international networks and offer a real opportunity for companies to reduce their cost of funding by engaging with local Asian trade finance providers. “In order to do so, however, companies will have to allow Asia-based offices more leeway in the selection of trade finance providers as part of a greater autonomy to reduce reliance on parent company funding,” says Greenwich Associates consultant Paul Tan.
The new report reveals 55% of companies in Europe and nearly two-thirds of companies in the U.S. centralise the selection of trade finance providers in corporate headquarters, allowing local offices no input.
Asia: Use of Trade Finance Growing Rapidly
Asian companies could benefit most from the growing universe of trade finance providers. The reason: Spending on trade finance is increasing rapidly among companies across Asia, with the largest companies participating in Greenwich Associates research upping trade finance spending to an average $3.3 million in the year ending Q3 2013 from $1.5 million two years ago. Spending among smaller corporates increased to an average $1.2 million from $700,000 over the same period.
Europe: Market Tightening Ahead
European companies’ spending on trade finance is increasing nearly as quickly as that of Asian companies. Large European businesses participating in Greenwich Associates research spent €2 billion on trade finance fees in 2013, up from just €724 million the prior year. In addition, some companies in these markets have begun to rely on trade finance as a supplemental source of capital.
United States: Companies Seek Improvements to Working Capital Management
From 2012 to 2013, the market share of the top five banks in U.S. trade finance declined three percentage points to 43%. Most of that business moved to small and regional U.S. banks that are proving themselves more than capable of providing high-quality service and products in domestic trade finance.
“These improvements are now paying off for both the banks and new U.S. corporate clients as companies concentrate on building efficiencies in working capital management amid a slow and uncertain economic recovery,” says Greenwich Associates consultant Robert Statius-Muller.