When surveyed by Demica last year, over 80% of trade finance teams expected demand to grow in 2024. More than one-in-three anticipated significant (in excess of 10%) growth with a similar percentage highlighting Asia Pacific as a growth area, ahead of the Middle East, Latin America and North Africa but behind North America and Europe.
Sean Edwards, Chairman of the International Trade & Forfaiting Association (ITFA) acknowledges that US-China relations remain a major geopolitical risk that is concerning trade finance teams because they don’t know exactly how it will turn out.
“What this means is that there is caution – people don’t want to invest massively,” he says. “The situation with energy imports has normalised and people do think this is a good business to be in, but the growth expectations are probably not quite as high as the report data suggests.”
As Head of Global Products and Structuring at Crédit Agricole CIB, Dominique Honore is well placed to comment on how some of the trends referenced in the report are playing out across different regions.
“In the last few months we have seen new activity and higher utilisation of trade finance programmes,” she says. “Some programmes have increased because of commodity prices and we have seen others needing more funding because of inflation.”
Honore says the Asian market remains highly competitive, which is driving pricing down and has translated into lower utilisation, at least for some banks. However, for the rest of this year and beyond she is confident trade flows will grow.
“Some corridors have changed and so we see a lot of activity from Asia to Europe as well as from Europe to the US so there will certainly be new opportunities coming from those corridors going forward,” she says. “The second half of the year is looking much more promising than the first six months.”
Eric Li, Head of Competitor Analytics, banking research at Coalition Greenwich suggests there has been limited improvement in global liquidity in 2024.
“On the demand side we see corporates borrowing less or borrowing from other channels,” he says.
“We see a lot of the utilisation for these programmes showing double-digit decline this year, particularly in US dollar-payable finance programmes where globally we see quite a big drawdown in terms of how much is being utilised.”
Li says weak trade flow around China accounted for some of this decline, although he also suggests that a slowdown in India was not fully factored into market forecasts. As a result, Coalition Greenwich expects industry market assets to decline marginally this year.
In terms of specific products, Li says growth in receivables discounting in Asia is outstripping payables finance for the first time in the last decade and a half at least, fuelled by new trade finance programmes from corporates looking for alternative options for financing their balance sheets.
From a technology perspective, Edwards says there is a high degree of conservatism among Asian corporates toward the use of technologies such as AI and blockchain.
“This is another one of those quandaries you find yourself in as a bank – do you go ahead and digitise if your clients don’t want it?” he adds. “Commodities have digitised quite well because there was a push by a number of the big players. We will get there but in a series of stages rather than a big bang.”
