At their briefing last week the Citibank trade team in EMEA gave their views on what is happening in trade finance today and where it is going. The session covered many areas.
Citibank reshaped their trade finance offering to reflect how their clients are evolving. Their supply chain finance programmes grew in ‘double digits’ globally over the year, e.g. a mandate won in France would then be rolled out to other regions and then globally using Citi’s global network and FX coverage. In supply chain finance Citi still feel there is room for organic growth. This is creating a secondary market for Citi’s partners and correspondent banks.
Citi is certainly seeing more of their corporate clients beginning to ask about sustainable investment opportunities and services. They believe that there is now a growing recognition that companies need to show that their services are sustainable. Companies need to demonstrate this is in their services and products because consumers and investors are now choosing whether to use the company or invest in it, based on how sustainable their practices are.
Citi is finding that well-positioned supply chain finance programmes can give companies leverage with their suppliers as to how sustainable they are too. They have several clients who are actively looking at how they can formalise their SCF solution to encourage sustainable practices.
When not providing finance directly, Citi can also play an indirect role, often by providing finance for their correspondent and partner banks who have supply chain finance programmes for their local SMEs. In addition, new technologies in SCF have reduced the costs of supporting an SME dramatically. According to Citi, today SMEs are now covered in supply chain finance programmes as never before due to the digitization of on-boarding technologies.
New mixing of solutions, e.g. a combination SCF + dynamic discounting + purchasing card to cover the whole supplier base. Targetting each one to the parts of the supplier base that would find it most attractive.
Citi is also offering investors access the SME trade finance markets through their network and their correspondent partners.
AML in trade
Citibank has one of the major own-bank Trade AML programmes in which they are partnering with EY SAS to provide a complete service. They now have ‘fewer false alarms’, i.e. the transaction is stopped unnecessarily. The new service has been rolled out in North America and Citi are now rolling out the programme worldwide.
Winners and losers
CTMfile asked, “Where is the growth coming from in trade finance instruments in 2019 and which are going to be the winners and losers?” Citi responded as you would expect, very carefully (and interestingly) saying that they expected growth coming from two areas, from products and practices that:
- Improve working capital efficiency:
- supply chain finance products that drive increased sales
- LC programmes tuned to clients’ specific needs
- working capital efficiency improvement programmes that include:
- paying more attention to credit control in their supply chains
- improving cash flow and revenue recognition
- being able to cope with less credit being available within their ecosystem
- Reduce counter-party risk mitigation, as there is an unstable global macro-economic environment, so growth will come from integrated financing solutions across ecosystems that provide greater transparency and reduce performance-related risks.
While the need for risk mitigation will not disappear, the losers will be:
- low margin, manually intensive products that demand more resources to support while carrying greater risks, both counterparty and compliance.
CTMfile take: The scale of Citi’s trade services impresses and how they are able to offer trade finance across a wide range of companies from the very largest to SMEs. The surprise (and worry) was that Citi has not been more actively pressed by their corporate customers for sustainable services and finance.
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