Club @ Sibos
TRADE FINANCE
The economic impact of sanctions
US sanctions regimes are having a significant impact on regional banks
and on trade itself. Bahruz Naghiyev, chief financial officer and a mem-
ber of the executive board at Azerbaijan’s Pasha Bank, talks to Club@
Sibos about the issue
What impact do sanctions have on Pasha Bank and on your clients?
What happens to companies in Azerbaijan that wish to do business
with Iran?
Bahruz Naghiyev: Since Pasha Bank aims to become a global bank and
aims to expand its network base both locally and internationally, we
make sure we follow all sanctions and avoid any type of business with
either sanctioned countries or individuals. Therefore, as you could tell,
Iran is not on our agenda and we do not support or provide any type
of financial services to companies and individuals if exposed to any
sanction list. Obviously, it has a negative impact on us since Iran is our
neighbouring country and we have economic ties dating back over a
long period. By avoiding business with Iran, we are giving up on USD324
million turnover. We refuse to process clients’ Iran business payments
so this is where our clients are mainly affected. In order to continue their
business, they end up changing their contract currency (from USD) so
payments can be processed, or they try to find a bank which will process
Iran payments through different channels.
There’s been a lot of talk about alternatives to Swift, particularly as
a means of avoiding US sanctions. Do you think this is a viable way
to deal with the sanctions environment? What type of actions do you
think need to be taken to alleviate the impact of sanctions?
BN: I do not think those alternatives are way of avoiding US sanctions
since at the end of the day they still apply KYC rules whenever they
onboard any FI into their network chain. For example, Ripple is one of
the platforms which is offering services that can replace Swift, however
members of those networks established by Ripple are also applying
KYC rules whenever they onboard each other. It is true that you enjoy
one hub where you can easily transfer your payments, however you go
through the same process in the beginning anyway. I believe avoidance
is not an option, rather it is matter of strategic decision. If strategically
you aim to establish your network base as one that is more concentrat-
quently, there is a pullback from supporting trade finance
transactions, resulting in reduced access to trade finance.”
Cooperation between the main trade finance banks and
improving transparency of clients’ global supply chains
is “an obvious way” to facilitate financing to SMEs, said
Rogier Schulpen, global head trade and working capital
solutions, Banco Santander. The Spanish bank, along
with ANZ, BNP Paribas, Citi, Deutsche Bank, HSBC and
Standard Chartered announced their plans to build the
Trade Information Network, a digital, inclusive, global
multi-bank, multi-corporate trade finance network. “Hav-
ing a single platform that provides transactional data on
underlying trade flows will not only enable financing but
will also stimulate further innovation in the trade finance
industry,” he said.
The Network aims to address the unmet demand for
financing earlier in the supply chain by enabling corpo-
rates to easily and securely communicate trade informa-
tion directly with banks of their choice. In addition to
the founding banks, more than 20 additional banks from
around the world are participating in developing the Net-
work and several corporates have expressed an interest in
participating in pilots.
Jörg Hessenmüller, head of group digital transforma-
tion at Commerzbank, told Club@Sibos that as banks are
experts in trade and finance transactions, they should
ed on local banking and feed local transactions only, then surely you can
ignore sanctions. However, if you are an international bank that is willing
to expand and provide fully-fledged financial services, then you want to
make sure you follow sanctions lists in order to maintain your interna-
tional network.
What sort of benefits do you envisage coming from the Silk Road
initiative? Do you think sanctions will have a negative impact on this,
or are they not relevant?
BN: Yes, I believe sanctions will have huge negative effect on the region
since the dominant currency to facilitate the business is USD. It will
weaken the relationship of the CIS and Caucasian region with Europe
and the US, both politically and economically. This is another reason
why several countries in the region would like to come together and
align their trade among each other in one of their local currencies. For
example, China and Russia are in talks to facilitate their trade between
each other in CNY; looking at their import and export level, this is quite
feasible.
One of the major advantages of the Silk Road is the effort to improve
regional cooperation and connectivity on a transcontinental scale. It will
also reduce the transportation cost that many countries bear whenev-
er transferring goods from one country to another. In a nutshell, it is
another opportunity for emerging countries to develop their economies
by being located on the Silk Road.
I personally think both the European Union and the US are missing
huge potential in the region because even without including China in
the picture, economically we are talking about USD105 billion turnover,
which is being reduced by the EU and the US imposing sanctions on
Russia and Iran.
Contacted by Club@Sibos, Swift’s official stance on sanctions is: “The
responsibility of Swift with regard to international financial sanctions
has always been to help our users in meeting their responsibilities to
comply with national and international legislation, while supporting the
resilience and integrity of the global financial system as a global and
neutral service provider.”
take a key role in the development of digital economies.
Traditionally, trade finance has been a paper-driven busi-
ness with many manual steps and stages, he said. “In the
growing digital economy, processes are digitalised and we
explore processing these transactions using blockchain.
Customers profit from increased transaction speed, high
security levels and complete transparency.”
Samuel Mathew, global head of documentary trade at
Standard Chartered, is pragmatic about the prospect of
digital trade finance solutions. Talking to Sibos TV, he
said “paper won’t stop” but the trick would be to ensure
that once the paper first touches the bank it is moved to
a digital flow. The ideal end state, he added, would be
a fully digitized system where importers and exporters
contract trade financing deals on an online platform. The
business would move from physical paper flows to full
data flows. Such a system would mitigate risks of fraud
and sanctions violations and also reduce costs through
the elimination of manual input errors.
“While there is real risk in doing business with emerging
markets, the perceived risk of doing business is much
higher.”
VINOD MADHAVAN, STANDARD BANK
www.clubsibos.com | CLUB@SIBOS | 11