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Basics of the University | COVID-19 Banking Economic Outlook: Interest Rates and Long-Term Expectations: Q&A with the Experts

After nearly a decade of declining or stagnating revenues, the trade finance industry could finally turn a corner in 2021

According to a forecast by Coalition, a research company owned by S&P worldwide, revenue could even exceed the pre-coronavirus pandemic level by 2022

Trade finance includes various financial instruments that support exports and imports by companies One of the world’s largest providers is HSBC Holdings PLC, Citigroup Inc, BNP Paribas SA, Standard Chartered PLC and Deutsche Bank AG

The positive sales outlook comes after a turbulent year for cross-border trade and those who fund it.After pandemic lockdowns and travel restrictions, global trade in goods is likely to have declined 92% in 2020, according to an October forecast by the World Trade Organization

According to a report released in September by Coalition and Greenwich Associates, these disruptions have “placed a heavy burden” on traditional trade finance activities

However, some of the overall decline in trade finance revenue was offset by growth in supply chain finance, which the coalition said grew 4% year over year in the first half of 2020. A supply chain finance program is typically managed by a corporate buyer at a bank or an alternative Providers set up so that suppliers can be paid for their invoices early

The coalition expects the total pool of trade finance revenues for banks worldwide to have fallen from $ 53 billion in 2019 to $ 49 billion in 2020, but is forecast to drop to 52 in 2021 Recovering $ billion by 2022 will be $ 54 billion above pre-COVID-19 levels

This is based on the basic assumption that a vaccine will be widely available in the first quarter of 2021 and that life will return to normal over the course of the year, Eric Li, director of research at Coalition, said in an interview

News of a vaccine in late 2020 also prompted Deutsche Bank to improve its trade finance outlook Daniel Schmand, the bank’s global head of trade finance and lending, expects trade finance to return to pre-pandemic levels by the middle of 2021

He told S&P Global Market Intelligence that he expects German trade finance revenues to increase by 5% to 10% in 2021 after a stable 2020 in 2020. He said this type of finance would become a “driving force “that will support an economic recovery. Among other things, he sees a good opportunity to support German exporters of medical devices, especially in emerging countries

Surprisingly, according to Li, the biggest driver of the industry’s top-line growth will not be a recovery in trade volume

While the WTO predicts a 7Li, trade volume will increase by 2% in 2021 Li doesn’t think banks will necessarily want to grow their financial operations at the same pace, and this is in part the result of the upcoming Basel III reforms, commonly referred to as Basel IV, which place higher capital requirements on banks’ trade finance books, especially at of lending to small and medium-sized businesses

Rather, revenue growth will be driven by improved trade finance margins, which Li said has been declining for at least five years. Supported by lower financing costs due to low interest rates, margins for banks could have increased as early as the second half of 2020, he said

Another driver is expectation of continued dollar weakness that would add value to non-dollar trading, he said

Even if banks fund the same volume of trade in 2021 as they did in 2020, revenue for that business unit could “slightly” increase by 3% to 4%, Li said

However, such an increase in sales does not necessarily mean that the banks will experience growth in the bottom line of their trade finance business

Gianluca Romeo, director of the banking division of Fitch Ratings, agreed that trade finance revenues are expected to improve in 2021 and 2022, but said that the sector’s overall profitability is being undermined by rising costs, including potential new IT investments Pressure could come as well as an increase in impairment losses on loans

Disruptions in the supply chain and an escalation in fraud during the pandemic could lead banks to increase their spending on digitization projects, he said in an interview.In Singapore, for example, Standard Chartered, DBS Group Holdings Ltd and 12 more banks announced on October 6, 2020 that they are working together to create a digital trade finance register to prevent scammers seeking funding from different lenders for the same trade inventory

Such investments would put profitability under pressure in the short term but would bear fruit in the medium and long term, said Romeo

He also warned that the real impact of the pandemic on asset quality deterioration will not be fully visible until the second half of 2021, as most government support packages and payment holidays will not expire until the first quarter of the year

Finance

World News – AU – After years of decline, banks have targeted trade finance revenue growth in 2021

Source: https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/after-years-of-decline-banks-set-for-trade-finance-revenue-growth-in-2021-61708844