December 15, 2018

World Trade Symposium 2018: Efficient originate-and-distribute model could be transformational to many economies

At a roundtable discussion led by Tradeteq at the Financial Times World Trade Symposium on December 6, 2018 in London, participants including banks, investors and SMEs shared the view that the efficient distribution of trade finance assets could have a tremendous positive impact for SMEs in many economies.

Participants to the discussion were unanimous about the motivation that banks have to sell more assets to both banks and non-bank financial institutions (NBFIs), for regulatory and risk management reasons. Interestingly, they pointed out that from a competitive perspective, banks don't have the option to cut their short-term trade finance exposure, so liquifying trade finance assets is becoming an important balance sheet risk management tool, and NBFIs are needed to complement the banking sector's capacity.

The issue is that NBFIs don't have the sufficient capabilities to analyse the risk profile of trade finance assets: financial information is often out of date, and difficult to compare between different jurisdictions, which tend to use a variety of formats and reporting criteria. Moreover, while banks have made a lot of progress to digitise their processes, they are not quite 'digitally ready' yet. As such, participants believe a third-party transactional risk scoring tool is necessary, ideally using machine learning technology. This would create transparency and level the playing field between selling originators and NBFI funders.

In terms of asset distribution format, the roundtable participants felt that note repackaging would allow the widest reach by meeting most funders' fixed income requirements. Banks already serve a critical role for NBFIs by providing the infrastructure for collection, work-out and on-boarding processes, amongst others. They also have the ability to co-underwrite risk with NBFIs.

In many economies, the difference between the success and failure of small enterprises depend on their access to trade finance. Now is the time to leverage the existing relationships between banks and NBFIs and form the technology-enabled synergies required to create much-needed extra capacity in the trade finance market.

Now in its third year, the World Trade Symposium is an annual event co-organised by FT Live and Finastra, gathering hundreds of C-level and senior executives from around the globe representing finance, trade, government, corporates and NGOs. The 2018 Symposium revolved around the theme 'The Future of Trade is Open' and explored topics such as protectionism, technological platforms to facilitate trade, and open finance.