Club @ Sibos
TRADE FINANCE
I
n the months preceding Sibos in Sydney, a potential
trade war threatened between the US and China. In
February 2018, the US implemented tariffs on solar
panel imports – often cited as the first shot in the trade
war against China. This was followed in March when US
President Donald Trump signed a memorandum to file
a World Trade Organisation case against China for “dis-
criminatory licensing practices”, restricting investment in
key technology sectors, and imposing tariffs on Chinese
products in areas including aerospace, communication
technology and machinery. The next day, the US imposed
a 25% tariff on all steel imports from all but a handful
of countries and a 10% tariff on all aluminium imports
(except from Argentina and Australia). In April, China
retaliated, imposing tariffs of between 15-25% on 128 US
products (worth a total of USD3 billion) including fruit,
wine, pork and recycled aluminium.
By early December, a total of USD250 billion of US tar-
iffs had been applied exclusively to China, while Chinese
tariffs applied to the US totalled USD110 billion. During
the G20 summit in Brazil, the two countries decided to
call a temporary truce. This was followed only a few days
later, however, by the arrest by Canadian authorities of
Chinese tech company Huawei’s chief financial officer,
Meng Wanzhou. The US is seeking her extradition, alleg-
ing that she was involved in selling technology to Iran in
violation of US sanctions.
“No bank will take a risk when it comes to sanctions and
banks have to demonstrate a ‘high degree of rigour’ to
ensure compliance.”
BARBARA PATOW, HSBC
10 | CLUB@SIBOS | Bringing the world to Sibos and Sibos to the world
Amid this highly volatile and increasingly protectionist
environment, trade finance banks are also grappling with
tougher sanctions regimes and falling margins (although
according to market research company Coalition, rev-
enues have increased slightly during the past year). At
Sibos, the impact of protectionism was discussed during
a panel session. Delegates heard that trade finance reve-
nues at the main banks involved were declining, despite
higher interest rates and commodity prices. Moreover,
faster payment settlements are bringing down working
capital needs and alternative trade finance providers are
presenting new challenges for banks. At the same time,
compliance and fraud risks remain a threat.
During an interview at Sibos, Barbara Patow, head of
correspondent banking at HSBC, said with sanctions “the
risk is absolute”. No bank will take a risk when it comes to
sanctions and banks have to demonstrate a “high degree
of rigour” to ensure compliance.
This rigour has resulted in a retreat on the part of many
banks from the trade business. According to the Asian
Development Bank, the global trade finance gap (the
amount of world trade that is beyond small and medium
enterprises, especially in developing countries) is around
USD 1.6 trillion annually. As Club@Sibos reported, banks
have reduced their correspondent banking networks and
exited client relationships – especially in developing and
emerging economies – due to higher regulatory compli-
ance costs. In addition, they often lack the local market
information necessary to take an appropriate risk expo-
sure in a developing country.
“While there is real risk in doing business with emerg-
ing markets, the perceived risk of doing business is much
higher,” Vinod Madhavan, group head: trade at Standard
Bank based in South Africa, told Club@Sibos. “Conse-