This is Euromoney’s inaugural award for the world’s best bank for trade finance. Arguably, it is being introduced at a time when this business has never been more important. The disruption to corporate supply chains after two years of Covid 19 and now war in Europe is acute; and the need for solutions to the critical problems that clients are facing worldwide has never been more urgent. Euromoney’s first winner in this category is a bank that is almost a byword for global expertise in trade finance: HSBC.
“Everyone at the top of the house at HSBC has at some point worked in trade,” says Vivek Ramachandran, head of global trade and receivables finance (GTRF) at HSBC. “Trade finance is strategic for the bank. It is so important for us.”
Ramachandran was appointed to lead the business in May this year, rejoining the team from Serai, the HSBC-founded business-to-business supply-chain platform venture based in Hong Kong that he has run since 2019. Ajay Sharma, Asia Pacific regional head of global trade and receivables finance, and Vinay Mendonca, managing director and global head product, propositions and structuring, had assumed joint interim leadership of GTRF in June 2021.
Shortlisted
- Citi
- Bank of America
It is no surprise that HSBC’s sheer global scale is an asset to the business: it finances $800 billion worth of trade and has invested in upgrading the core tech platform for both large corporate and small and medium-sized enterprise clients globally.
“For SMEs the number-one issue is access to working capital for their survival and growth,” Ramachandran explains. “We have local understanding and deep expertise on the ground in 53 markets, with delegated authorities to support quicker access to our solutions.”
The disruption caused by Covid drove digitalization in trade finance, and the pace of transformation has been quick.
“Overall, 86% of trade finance transactions are now digital,” says Ramachandran. “At the start of 2021, this figure was 69%.”
Digitalization drives efficiency. For example, with UAE-based client International Foodstuffs, the bank has developed a straight-through digital trade loans solution that removes the requirement for physical documents and can process loans within minutes rather than 24 to 48 hours. Change such as this can be seen throughout the business.
“It used to take eight to 12 weeks to get receivables finance approvals,” says Mendonca. “We worked with a fintech partner to extract accounting information from client ERP [enterprise resource planning] packages and enrich it with third-party data. This allows us to digitally decision approvals for our clients. We have now processed 125 proposals through our Digital Receivables Finance platform and have launched in five markets.”
Supply-chain resilience has dominated the year under review, both in terms of logistics and sustainability.
“We used cloud technology to deploy working capital solutions in 17 markets during the award period,” points out Mendonca, “and at the end of the period we had market-leading supply-chain finance capabilities in 19 markets.”
A key differentiator this year has been pre-shipment finance as demand for risk mitigation products grows.
Sustainability presents a big opportunity for all trade finance banks. HSBC inked its first sustainability-linked syndicated bank guarantee last year for Australia-based John Holland Group and has also led a sustainability-linked loan for garment manufacturer Epic Group. Around 80% of a company’s carbon footprint resides in its supply chain, so this is a crucial part of the process.
Blockchain enables all parties in the trade ecosystem to talk without anyone owning the data and eliminates digital islands
Vinay Mendonca
“Many large buyers can’t evidence who is in their supply chain below tier two,” Mendonca tells Euromoney. “While multi-tier solutions are helping with credit availability, there is more to do on tracking sustainability through the end-to-end supply chains. In future, sustainability credentials will be embedded digitally in supply chains.”
HSBC has been instrumental in the growth and development of distributed-ledger technology trade-finance platform Contour from the outset and conducted the first live transaction on it when it went into production in early 2021. Since then, it has supported the onboarding of more than 50% of corporates live on the network and is the first foreign bank in China to be present.
HSBC also completed an industry-first letter of credit document presentation on the TradeLens ecosystem, enabling a fully digital end-to-end process. The pilot transaction involved the shipment of agricultural fertilizer from South Korea to Bangladesh in an entirely paperless process.
“Blockchain enables all parties in the trade ecosystem to talk without anyone owning the data and eliminates digital islands,” explains Mendonca. “We now have 65 customers live on the Contour platform.
“It is highly unlikely that all trade will use blockchain, but we think 25% of flows will be enabled by blockchain. We have 270 clients who use enough letters of credit for paper to be a serious problem. When they ship, it can take them five to 10 days to get paid due to the slow turnaround of paper movements. Blockchain can help reduce this to within a day. If we can get the majority of those 270 clients onto blockchain, we would call that a win.”
