Page 37 - Buy Russia - bne IntelliNews monthly magazine April 2017

bne April 2017 Special report I 37
COMMENT:
Trade finance guarantees vital in emerging markets
Trade finance guarantees are particularly important in emerging markets where foreign trade partners are still cautious in taking own payment and there is performance risk on local importers and exporters, due to the high country risk and commercial payment risk.
During 2016, EBRD’s Trade Facilitation Programme (TFP) supported 1,359 trade finance transactions for a record €1.54bn (2015: 1,035 transactions
with a total amount of €868mn). TFP support was particularly needed by banks in countries with lower country risk ratings such as Ukraine, Belarus or Armenia, which as yet do not have sufficient trade finance facilities from foreign commercial banks. Partner banks in the more advanced countries and the Southern and Eastern Mediterranean region predominately used TFP for large-volume trade finance transactions where there was lower appetite from the foreign commercial banks.
Generally, the availability of trade finance from foreign commercial banks remains a significant impediment. Increased costs of compliance and higher capital charges on trade exposures have prompted commercial banks to reduce their presence in EBRD countries of operation even further. This has been particularly noticeable in CIS countries and in the Western Balkans. Where commercial banks continue to operate, they tend to prefer short-term transactions.
Most TFP transactions in 2016 facilitated the import and distribution of
food and food commodities, metals and smaller machinery and equipment. The slow-down of economic growth resulted in a lower demand for larger machinery and production equipment. Imports of machinery and equipment (where they happened) were mostly financed through letters of credit, while recurring imports of foodstuffs, clothing, fast moving consumer goods and vehicles were mostly financed through counter guarantees and short-term cash advances with tenures of up to 6-12 months.
Import transactions continued to dominate TFP business volume and accounted for approximately 92% of the total number of transactions in 2016 (2015; 93%). The programme managed to increase its export transactions and works to expand the share of export business. In 2016 the TFP supported a number of export transactions such as the sale and delivery of: voltage regulators from Cyprus to Jordan; juices and canned food from Armenia
to Hungary; cast iron segments from Ukraine to the UK; ceramics and earthenware from Croatia to Germany.
Rudolf Putz,
head of the trade facilitation programme of the European Bank for Reconstruction and Development
product: Russian unsecured letters of credit with advance payment. In total, over RUB100bn worth of unsecured letters of credit were issued in 2016.
“We pay special attention to settle- ments using letters of credit,” says Evgeny Kravchenko, Sberbank CIB’s Acting Head of Trade Finance and Cor- respondence Banking Division. “We are seeing the largest growth in settlements using internal Russian letters of credit denominated in rubles. The volume of such operations exceeded RUB420bn
in 2016, up 45% year-on-year. This product contributes to the transfor- mation of Russian trade, increases transparency for all parties, and offers attractive financial conditions according to international standards. The volume and quantity of transac- tions in import and export operations have been rising as well; notably,
the volume of issued letters of credit involving post-import financing more than doubled in 2016 year-on-year.”
Let’s get digital
While lots of traditional letters of credit are still being used in the wider CEE
& CIS region, one important trend in trade finance is digitalisation, with most banks working on it hard as fintech innovation increases across the board, coming from a low level in 2015.
“We see digitisation becoming more and more important not only for
the overall banking sector but also
for trade finance,” says Raiffeisen’s Zucker. “During the last months we heard from a number of banks and corporates that processed their first trade finance transactions based on blockchain technology. Obviously, these first transactions were tailor- made to fit the technology's needs and set-up costs were huge. However, I am convinced that in a couple of years these investments will pay-off.”
Only 7% of banks in the 2016 ICC survey reported that their trade finance processes had been digitised “to a great extent”, with 43% reporting “very little” advancement in this regard.
As expressed in a section of this report dedicated to the benefits of digitisa-
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