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HSBC gunning for Asia trade finance
[SINGAPORE] HSBC, with its century-old history in trade financing, is unfazed by rising competition in this arena and is, instead, expecting further growth to come from its efforts in tapping Asian trade.
With deeper inter-Asean cooperation coming to the fore, and Singapore standing as the regional centre for commodity financing, HSBC's CEO of global commercial banking Simon Cooper says the bank is gunning for Asian trades, including those driven by commodity imports into China.
"There is definite competition in a number of local markets," Mr Cooper told The Business Times in an exclusive interview.
But he pointed to HSBC's presence in some 60 countries, which gives it access to almost 80 per cent of the world's trade flows - "I think we have a competitive advantage," he felt.
Trade financing, essentially the business of financing international trade, has been attempted by all and sundry; they are loans that are typically short-term in nature, and less expensive on a capital basis.
Banks also offer services to help companies manage their cashflow, which translates into a steady stream of fee income.
The regulatory pressure to ringfence the local operations of international banks - a model HSBC already subscribes to - will play to the bank's strength as it chases cross-border trade flows alongside its competitors, Mr Cooper said.
"It will take significant effort and time to capture and re-shape themselves around the model that we've had," said Mr Cooper, referring to his peers. "For us, that hasn't proven to be a barrier."
Pre-tax profit from commercial banking in Asia made up nearly half of that segment's total earnings for HSBC in the first quarter, results on Wednesday showed. In Asia, commercial banking was the only segment that posted higher earnings, which was up about 4 per cent to US$1.2 billion, compared to the same period a year ago.
Globally, profit from commercial banking gained 10 per cent to US$2.4 billion from a year ago, thanks to better performance across all markets. Overall, though, quarterly profit fell 20 per cent to US$6.8 billion, dragged down by HSBC's investment banking unit, and the absence of gains from asset sales.
HSBC's first-quarter results, out on Wednesday, reflected a lift in trade financing margin, following a painful compression that besieged banks most of last year.
"With one quarter of trading, it takes a brave man to make a forecast," said Mr Cooper. "We have no indications that margins are going to be compressed further, but it's too early to be categorical about that."
In Singapore, HSBC expects growth from working with large corporates and mid-market firms, he noted.
Big companies are looking for funding opportunities through the capital markets, and a maturing private banking sector in Singapore brings in demand for fixed income products.
Meanwhile, given Singapore's role as an Asean hub for trades flowing into China, HSBC can take advantage of the regional expansion of mid-market clients, added Mr Cooper.
Greater Asean ties are also in the making, as regional leaders work out the finer details behind an economic blueprint due for implementation next year.
"We've seen tariffs fall quite dramatically," noted Mr Cooper. "There is a willingness to be more cooperative."
Mr Cooper remains optimistic on China, even amidst concerns over its slowdown. "We're not looking at a negative growth. It's just less attractive than before."
A clearly precious point of access for commodities and trade finance is at the Pearl River Delta, he said, referring to the manufacturing hub of the world.
And even as China deregulates the use of the yuan over the next few years - which is likely to narrow the arbitrage gap between onshore and offshore yuan - the trade flows will ensure that yuan payments become more common, pointed out Mr Cooper.
Asked about China's shadow banking, Mr Cooper said he takes comfort from Chinese regulators, who have shown a good understanding of the situation. In tapping the Chinese trade, the bank is selective of its clients, he added.