Citi eyes rising Asian corporates

[SINGAPORE] Citi is aiming for a larger share of trade finance business from Asian corporates that are challenging Western incumbents, a senior executive said.

This comes amid concerns over a slowdown in China. Citi, however, is confident that some South-east Asian markets are poised to pick up the slack.

Citi's revenue profile from this segment in Asia now reflects a 50-50 split in income from non-Asian multinational corporations (MNCs) and large Asian firms, Amol Gupte, region head for treasury and trade solutions, Citi Asia Pacific, told The Business Times.

"Asia is clearly becoming the export engine of the world," said Mr Gupte. Asian firms are "now on top of the pyramids, and challenging very established players", he added, without naming such firms.

Non-US operations of the US bank contribute more than half of the American bank's business. And with the treasury and trade solutions business, Asia contributes a dominant part of the global share, said Mr Gupte.

In the first quarter of the year, the group reported US$1.95 billion in revenue from its trade and treasury solutions, which inched up one per cent over the year.

Mr Gupte acknowledged the clear slowdown in China, but said that the markets of Thailand, Indonesia, Vietnam and the Philippines offer support.

"There are alternate markets that will take up some of that slack," he said.

There are also fears over a fallout from China's shadow banking, which Mr Gupte noted as a concern.

In this unregulated credit market, the Chinese are churning cash - including money from trade operations - into risky high-yield investment products.

Mr Gupte said that China has to deal with a fundamental issue of depressed interest rates, prompting the Chinese to look for more attractive yield. Even as China takes steps to deregulate its interest rate, it will take time for efforts to flow through, he noted.

Against this backdrop, Citi is selective on the target markets to manage any exposure to shadow banking, he said. "We aren't concerned about the overall portfolio."

Citi also emphasises on working with corporates directly, as opposed to working with other banks that play intermediaries.

"It's a far stickier business. It's a far more complicated business," said Mr Gupte. "We don't go overweight on our FI (financial institutions) portfolio."

A bank with an extensive regional network can represent both the importer and the exporter in a cross-border trade.

Those without the same network or expertise to assess the risk profile of a client in another market will work with a bank in that country which will represent that side of the trade.

Banks operating through transactions with another lender - a business that can be ramped up quickly - are likely to have seen a larger margin compression last year, noted Mr Gupte.

These bank-to-bank transactions also involve more arbitrage with the yuan, he added. Arbitrage comes as offshore funding rates are usually more attractive than the onshore rates.

Citi is also speeding up its processes through technology. Documents are auto-populated through optical character recognition technology, said Mr Gupte.

The bank has offered data analytics to clients too, offering information such as the credit rating of corporates' supply chain.

Meanwhile, corporate clients are showing comfort in transacting online. In Asia-Pacific, over US$36 billion in payments from corporate clients of Citi were through mobile technology last year, said Mr Gupte.