August 6, 2020
Despite the ongoing uncertainty caused by the pandemic, the 2020 Global Survey from the International Chamber of Commerce has revealed that the financial services industry is optimistic towards the future of Trade Finance and seeking to make further investments. The ICC surveyed 346 respondents across 85 different countries with participants ranging from large multinational banks to regional and local banks with small trade flows.
Looking at both the Market outlook on Trade Finance and the ongoing impact of COVID-19, the survey outlines the following salient points:
- Banks are looking to expand their trade finance business through a variety of methods such as customer acquisition, new products, geographical expansion and an increase in digital ways of working. The survey states that “86% of respondents said that supply chain finance was either an immediate or near future priority, while 84% answered the same for digital.”
- Banks from all geographies have noticed a decrease in trade flows since COVID-19. However, the subsequent problems caused by the pandemic have led most banks to embrace innovative and digital solutions. The ICC posits that this may be a sign of more permanent changes “as the current crisis catalyses and accelerates a significant reduction (perhaps ultimately the elimination) of paper in trade and trade finance transactions.”
- Banks are acknowledging the urgency in developing a sustainable strategy with “67% of respondents stating that they have one.”
Despite these positive changes, the report also addresses some key areas for concern:
- Uncertainty still exists around issues pertaining to regulation and compliance within trade finance such as anti-money laundering (AML) and Know Your Customer (KYC) requirements in addition to individual international sanction regulations. 63% of those surveyed stated that they were extremely concerned about AML and KYC.
- Deteriorations in credit quality due to anticipated bankruptcies are likely to impact trade and trade financing. Despite this, the report asserts that industries standards and practice has been ‘robust and respected throughout the crisis’.
- There is still a significant divide between global and non-global banks and this divide is expected to continue. Currently there are “64% of global banks offering SCF platforms, compared to just 13% of local banks and 38% of regional banks.” The report analyses that this may be due to a lack of interest, capability or capacity amongst smaller banks to advance their SCF investment – most likely a combination of all three.
- The divide between global and regional banks also exists regarding digital adoption. While 83% of global banks have a digital strategy, only 46% of local banks report having one. In general, local banks are more cynical regarding the advantages and benefits offered by digital methods. There is consequently a concern that these smaller banks will be left behind as trade finance continues to evolve. 59% of global banks believe digitization will reduce costs compared to 25% for local banks and 32% of regional banks.
Digital trade is a key theme of the ICC’s Trade Finance report. It is “widely seen as a key enabler to help banks close the trade finance gap, with 55% of survey respondents positioning themselves to service more MSMEs using technology solutions.”. Despite this, efforts need to be focused on ensuring smaller, regional financial institutions – particularly those in developing countries – have the tools and support in order to introduce digital ways of working into their current processes.
The full report is available to view here.
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