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Top trade finance banks in Europe and Asia make a splash

Trade is one of the areas touching treasury that has been most impacted by the COVID-19 pandemic. Indeed, global trade was down by about 5% in 2020, according to the World Trade Organization. Research from Coalition Greenwich has shown how this has impacted large corporates and their relationships with their trade finance banking partners in both Europe and Asia.

In European trade finance, pandemic pressures persist

The consequences of the COVID-19 crisis continue to impact the European trade finance industry as companies seek support and advice amid lingering disruptions in business operations, supply chains and trade flows.

In the midst of the 5% reduction in global trade, however, demand for trade finance services was actually growing among large European corporates. That increase, which spanned services for trade both within Western Europe and around the world, reflects companies’ need for expertise and assistance with crisis-related conditions.

"Companies are not hesitating to reallocate business among trade finance providers to get the help they need," says Dr. Tobias Miarka, co-head of Banking at Coalition Greenwich. "More than 40% of the large European corporates participating in the Coalition Greenwich 2021 European Large Corporate Trade Finance Study intend to shift business to or from individual trade finance providers in the coming year."

In this environment, BNP Paribas drew on its robust international network and high-quality service to widen its lead over other providers in terms of market share among large European corporates. BNP Paribas tops the list of 2021 Greenwich Share Leaders in European Trade Finance, which also include UniCredit and HSBC. BNP Paribas also joins Santander as the 2021 Greenwich Quality Leaders.

Digital gains ground

Although trade finance lags far behind most financial service businesses when it comes to digitisation, there are signs that a transformation is underway, and that the COVID-19 crisis provided a catalyst for change. The share of large European corporates citing 'quality of digital platforms and solutions' as a key criterion in picking trade finance providers jumped to 37% in 2021 from just 11% in 2019.

Most banks report a sizable pickup in the share of corporate clients using their proprietary digital platforms to initiate and manage trade services and finance. Among the biggest banks in the industry, usage ranges from about a quarter of large corporate clients to more than 35%, with individual banks like Santander topping 40%. Companies are also increasing their use of third-party digital platforms. Although these platforms are generally used only as a supplement to bank proprietary system, the rising tide of digital adoption during the COVID-19 crisis increased corporate usage last year.

Defining ESG in trade finance

Large companies in Europe and around the world are embracing ESG standards for their businesses, and in terms of trade finance, companies’ initial focus is centred on sustainable finance. The share of large European corporates naming 'expertise in sustainable financing' as a key factor in their selection of trade finance provides jumped to 16% in 2021 from just 3% in 2019. In Norway, nearly a third of companies now consider sustainable finance expertise when picking a trade finance provider, as do 1 in 5 Germany companies. 

Outside of sustainable financing, many large European corporates say they don’t know or it’s too soon to tell what their banking providers can do to help them achieve their ESG objectives. Although many companies are still working on defining or refining their ESG targets, all do agree on one point, however: Providers should be proactively engaging with advice and ideas on the topic of ESG in trade finance.

Insurance companies: A new player to watch

Banks face a new and increasingly tough competitor in trade finance: insurance companies. In an environment of historically low interest rates, insurers are hungry for new sources of yield, and trade finance is an appetising target. Large European corporates are citing insurance companies as trade finance providers with increasing frequency in the Coalition Greenwich research. Insurers have several built-in advantages when it comes to trade finance, including broad international networks with a physical presence in many countries, robust digital capabilities, and unparalleled expertise in risk assessment. These attributes could make insurance companies increasingly aggressive rivals to banks for corporates' business in the future.

Methodology - Europe

Between April and July 2021, Coalition Greenwich conducted 523 interviews with corporates with annual revenues of €500m or more across Austria, Belgium, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Nordic countries, Portugal, Spain, and the United Kingdom. Interview topics included product demand, quality of coverage and capabilities specific to trade finance.

Battling continued COVID-19 dislocations, Asian companies find support from top trade finance banks

Although global trade volumes have rebounded from the depths of the crisis last year, Asian companies are still battling dislocations caused by COVID-19 and are looking to their trade finance providers for help.

Supply chain disruptions, surging shipping costs and elevated commodities prices are just a few of the pandemic-related challenges still roiling the businesses of large Asian corporates. In this difficult environment, large Asian corporates are asking their trade finance providers for support and advice.

"The cases of COVID-19 in Indonesia and India are high, which affects our business and increases the difficulties in communicating with the customers," the representative of a large Asian corporate told Coalition Greenwich. "The trade war has negatively impacted the whole supply chain of raw materials and key components," added a treasury executive at another large Asian company. "We are also concerned about the costs due to inflation."

Companies participating in the Coalition Greenwich 2021 Asian Large Corporate Trade Finance Study said they are interested in useful advice on geopolitical and country risk, as well as ideas about how to best hedge FX risks and other exposures. In terms of immediate challenges posed by the pandemic, companies are looking to their trade finance providers for proactive market updates, advice on operational issues like supply chain, work-from-home and digitisation, and specific advice on financing, working capital and liquidity management.

All of the 2021 Greenwich Leaders in Asian Large Corporate Trade Finance earned recognition from corporate clients for delivering on these and other counts during the crisis. The 2021 Greenwich Share Leaders for Asian Large Corporate Trade Finance are BNP Paribas, HSBC, Standard Chartered Bank, DBS and Citi. The 2021 Greenwich Quality Leaders in Asian Trade Finance are Bank of America and BNP Paribas.

Digital acceleration

Trade finance has been one of the last areas of financial services to go digital. Asian large corporates continue to use paper-based, manual processes for many trade-related functions. The COVID-19 crisis could mark a moment of transformation. From 2019 to 2021, the share of large Asian companies citing 'quality of e-banking/digital platform' as a key consideration in their selection of a trade finance provider tripled to 34%. 

"Given the pressure on bank margins in Asian trade finance, providers are eager to facilitate the shift to digital channels," commented Winston Jin, consultant at Coalition Greenwich. "By forcing companies to adopt digital tools just to keep their businesses running during lockdowns and work-from-home, the pandemic accelerated the digitization of trade finance, not just in Asia, but around the world."

Applying ESG standards in Asia

Although a large majority of the companies participating in this year’s study adopted formal ESG targets for their companies, many large Asian companies have not yet determined the precise role ESG criteria will play in trade finance.

Going forward, companies will be asking their trade finance providers for advice about how to apply and implement ESG in the trade function. Today, a quarter of large companies want their trade finance providers to help achieve sustainable financing objectives, including the use of green bonds. Companies also see the move away from paper and toward digital as an avenue in which their banks can help support ESG standards.

"In general, companies are looking for their trade finance banks to take a proactive role, and to reach out with ideas about how to create and meet ESG goals in the areas of treasury and trade," noted Gaurav Arora, head of Asia at Coalition Greenwich.

Methodology - Asia

Between April and June 2021, Coalition Greenwich conducted 669 interviews with corporates with annual revenues of $500 million or more, across China, Hong Kong, India, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan, Thailand, and Vietnam. Trade finance interview topics included product demand, quality of coverage and capabilities in specific product areas.

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