StanChart rides return of trade flows

Singapore

STANDARD Chartered Singapore registered an over 20 per cent boost in transaction banking revenue last year owing to higher financing activity that drove revenue in this segment back to levels last seen some two years ago, said a senior executive at the bank.

"Over the past two years, there's been great emphasis to make StanChart a flow bank to our clients," said Priscilla Soh, head of transaction banking. Ms Soh, who was appointed to the post 11 months ago, previously headed the Singapore financial institutions business for the bank.

Banks earn fees from offering transaction services. Transaction banking is a big focus for many banks, as the trade finance involved is short-term and does not eat up capital.

In the area of trade, an importer's bank issues a letter of credit - a form of guarantee - to the exporter's bank. The importer's bank pays the exporter's bank - usually out of an established credit facility - after verifying the relevant trade documents on behalf of their clients.

For much of 2014, companies took advantage of cheaper offshore yuan in offshore centres such as Singapore and Hong Kong. A Singapore-based bank would earn fees by lending offshore yuan to a supplier at the equivalent amount that his customer owes him for the goods, but that are not due to be paid yet.

However, amid concerns over China overheating, and as the funding gap between offshore and onshore yuan closed, that financing ebbed.

What is worth noting is that after a relatively quiet time for the segment and the bank's specific de-risking, StanChart is now seeing China-related trade deals jump significantly.

This in part reflects China's One Belt One Road push. "It is too big for anyone to ignore," said Ms Soh, adding that the corridors connecting China to India, Bangladesh, and Pakistan, have been particularly active.

On the trade funding segment, growth was close to 20 per cent from a year ago.

The bank has also had success working with clients with global sourcing needs. By speeding up the payment of account receivables for clients' suppliers, it has cut waiting time by as much as half.

The bank's global presence helps: in the case of one sportswear company, 80 per cent of its suppliers were in markets where StanChart also has a presence, said Ms Soh.

StanChart gets three-quarters of its profits from emerging Asia.

Global trade banks such as StanChart can also offer financing to clients' suppliers at the credit grade of the client, she added. This again speeds up the payment cycle.

The bank's clients include "a fraction" of the 7,000 MNCs that have a base in Singapore and that require efficient means to sweep US dollars back to their home market.

It is estimated that about half of the MNCs based here also have their regional headquarters in Singapore which presents an opportunity for banks to serve large corporations' regional treasury centres.

"We still see Singapore as a buying centre," said Ms Soh, noting that Singapore remains attractive as a location to set up a regional treasury centre to manage investments into Asean.

Banks such as StanChart have been using services called "virtual accounts", which cut out the need for corporates to operate multiple physical bank accounts. Such a service automates reconciliation.

Using such accounts, the bank took in a substantial amount of US-dollar liquidity amid the increased tightening, by working with large US corporates to operate their accounts in the US working timezone - that is, up to 4am Singapore time. Offering a near round-the-clock service for select clients allows the Singapore market to retain dollar liquidity, Ms Soh said.

On the cash management front, revenue was up nearly 30 per cent from a year ago.

Large corporates typically would want to shift cash from overseas entities back home. This "cash sweeping" reduces the need for companies to borrow to manage their cashflows and can reduce forex conversions.

Growth ahead in the cash management space at the bank can be further bumped up by greater M&A in the region, as StanChart Singapore has sewn up some escrow deals.

While most banks booked higher revenue in transaction banking amid stronger business activity last year, StanChart has also seen a healthy mix of growth across all three sub-segments that includes custody services, said Ms Soh.

In the securities business, where the bank earns a fee from custody and clearing services, StanChart Singapore has garnered a near 60 per cent market share in the brokerage-dealer space, which makes the bank's transaction banking revenue mix unique versus its rivals.

Revenue in the securities business was up by more than 13 per cent in 2017. Ms Soh said the bank is optimistic that moves to expand the asset management space here would fuel growth further.