Trade finance platforms pivot as banks take risk-off mode

Singapore

A NEW exchange will soon come from PrivEx to facilitate the trading of corporate loans among financial institutions.

But it is not alone. Other fintechs have taken a stab at digitising loan distribution, though this has chiefly been in trade finance. And as banks take a risk-off mode in trade finance, these nascent platforms have had to make small pivots too.

Trade finance covers financial instruments that companies use to facilitate trade, such as letters of credit, performance guarantees, and import/export loans. It has traditionally been a bank-to-bank market managed using text messages and Excel sheets.

Figures from Standard Chartered Bank and International Chamber of Commerce estimate that global trade faces a US$3.4 trillion financing gap.

Covid-19 has worsened the already high rates of rejected applications. More pain is ahead when banks face higher capital requirements next year due to Basel III reforms.

Singapore-based fintech CCRManager offers banks a way to re-distribute trade finance to other banks, credit insurers and fund managers. Its platform, around since 2017, has banks listing assets for distribution, firm up deals, and exchanging documents on a secured channel.

Over the years, the company has partnered with some 112 banks across 35 countries, as well as with a handful of credit insurers and funds.

But it has also met challenges, said its chief operating officer George Lee. The recent commodity trading scandals led some banks to exit the space. "Once you shut off the tap, there is less need for you to distribute risks, because your bank has the capital, credit limits and liquidity required to support transactions," he said.

Fund flows via its platform have fallen by about 20-30 per cent over the last two years. CCRManager is now moving upstream to reach out to the corporates.

TradeAssets - which links financial institutions to an online marketplace where they transact each other's bank risks as well as third bank risks arising from trade finance deals - noted too that shrinkage in supply of trade finance is due in part to "higher balance sheet and performance metrics expected of regulated lenders, higher standards of compliance and recent instances of commodity trade finance failures", said its Singapore-based executive director Srinath Keshavan.

A consequence has been a narrowing of risk appetite for other bank risks. The marketplace has collected 60 member banks, and has seen aggregate postings of over US$800 million in the past 18 months.

Still, Tradeteq's co-founder and chief executive Christophe Gugelmann said bringing institutional capital into the trade finance market is more urgent than ever.

Operating in both the UK and Singapore, Tradeteq can restructure finance assets into capital markets products. It also uses artificial intelligence-driven credit scoring to give a risk rating.

The four-year-old firm is now looking to tokenise pools of trade finance instruments to open up to smaller institutional investors. It hopes to eventually reach retail investors.