Tuesday, 10 December 2024

Banks and corporates require new strategies to maintain growth

5 min read

By Chris Kapfer

Global supply chains for corporations and trade finance have been influenced by major global themes in recent years. This necessitated new strategies and innovative solutions to sustain growth, manage liquidity, mitigate risk, ensure sustainability, and the transition to ISO20022 in trade finance. Atul Jain, Global Co-Head of Trade Finance and Lending at Deutsche Bank, discussed the challenges corporates face and how Deutsche Bank is addressing these.

At Sibos 2024 in Beijing, Atul Jain, Global Co-Head of Trade Finance and Lending at Deutsche Bank, highlighted major global themes reshaping trade finance over the past years. Key factors include the pandemic, rising protectionism, geopolitical tensions, and macroeconomic shifts such as inflation, higher interest rates, and energy security concerns. He said, “Corporates are facing increasing demands for ethical sourcing and sustainability, alongside strategic pressures to localise supply chains and address liquidity risks. At the same time, governments have taken a more active role in driving trade behaviours, providing tax credits but also imposing sanctions and tariffs. As a result, companies are increasingly seeking out working capital advisory and exploring new markets to increase their resilience”.

Jain acknowledged that while global trade-to-GDP ratios have plateaued in recent years and use of lines on existing flows has been reduced because of high interest rates, the current environment has also opened up entirely new discussions with corporates around supply chain resilience and risk management — playing to Deutsche Bank’s more advisory-led approach. 

Evolving requirements of corporates in trade finance

On the operational side, Jain emphasised that clients are primarily seeking access to liquidity, given the current environment of high-interest-rates and focus on energy security. They also prioritise supply chain resilience and expansion into new markets, thus requiring partnerships with institutions that have local expertise. Risk management is a parallel theme of critical importance for corporates with risks encompassing not only liquidity but also supply chain, counterparty credit, foreign exchange, rates, and commodities risks. These factors have become integral to Deutsche Bank’s trade finance offering.

Jain outlined Deutsche Bank's key differentiators in trade finance to address client needs more effectively. “Our global network spans developed, emerging, and frontier markets, offering on-the-ground presence in all major regions. If you take Asia Pacific, as an example, we're onshore in 15 markets with an average tenor of more than four decades,” he said.  The bank has also shifted from providing trade products to delivering comprehensive trade solutions by integrating all flow and structured trade finance and lending products under one umbrella. This enables more efficient packaging of services, such as the combination of project finance with documentary credit and working capital. Additionally, Deutsche Bank brings in expertise from across the institution, including payments, agency, and hedging, while continuing to broaden its span of distribution partners—including banks, insurers, multilateral agencies, and export credit agencies.

Sustainability in trade finance gains momentum

With sustainability becoming a key focus, especially regarding Scope 3 emissions, banks are increasingly acting as strategic partners to help businesses meet their net-zero goals, including incentivising and monitoring sustainability performance targets for both anchor clients and suppliers. 

Deutsche Bank supports sustainable trade financing through a platform-based solution for working capital, which helps anchor clients manage their supply chains using red, amber, and green scorecards across environmental, social, and governance (ESG) metrics. The bank also offers sustainability-linked loans and focuses on financing renewable energy projects across wind, solar, and battery manufacturing. Additionally, Deutsche Bank’s ESG Centre of Excellence provides bespoke advisory services to help clients transition towards sustainability, while it works with third parties to track and monitor progress.

Large corporates and mid-sized businesses, however, continue to face major challenges when transitioning to sustainable trade finance. Jain considers disciplined prioritisation and investment as significant hurdles, especially in a high-cost environment where corporates struggle to balance limited budgets with their long-term sustainability goals. Jain also singled out the internal alignment between treasury and procurement teams, as these departments often operate independently despite the promise of stronger alignment and collaboration.

Adoption of ISO 20022 drives innovation in trade finance

The implementation of ISO 20022 has been a multi-year endeavour, with banks worldwide aiming for full adoption by 2025. However, varying adoption rates across jurisdictions and the coexistence of legacy systems with the new ISO format continue to create operational challenges for banks.

"We are 18 months into this coexistence period. During this time, while the major payments market infrastructure players have adopted the standard — including the Eurosystem’s real-time gross settlement system T2, the Clearing House Automated Payment System (CHAPS), and CHIPS, the largest private-sector USD clearing and settlement system globally — only slightly more than 25% of the market overall has followed. At Deutsche Bank, we have placed ISO 20022 at the heart of our payments platform and data strategy to enable frictionless payments, enhanced compliance, increased speed, and reduced costs."

According to Jain, the key to accelerating adoption is improving infrastructure — including compliance systems, client data repositories, and digital customer interfaces — while ensuring security and privacy. An educational component is also crucial, helping all players in the organisation — sales, service, and operations teams, along with their infrastructure partners — become comfortable with the new standard. "Different parties are at varying stages of adoption and scale, and managing this complexity within their own operational contexts and timeframes remains the biggest challenge in delivering on the promise of seamless straight-through processing."

Jain emphasises that, at its core, the new standard aims to enhance customer experience, improve payment traceability and timeliness, strengthen fraud detection, and drive innovation. "In the realm of cross-border trade, where there remains significant complexity on account of the number of counterparties, various regulations, and compliance-related checks, this is an exciting opportunity to improve sanctions screening and AML (anti-money laundering) controls," he said.

“Another key benefit of ISO 20022 is its potential to help drive client innovation, including value-added services to improve receivables tracking, reconciliation, and liquidity management and forecasting.”

New accounting standards to drive transparency

In the coming years, corporates will face new accounting standards requiring greater transparency in supply chain financing disclosures. The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are driving these changes to enhance reporting.

Jain highlighted that increased transparency will improve governance and attract more distribution partners to trade, particularly in ESG-related areas. While supply chain financing regulations are evolving, including accounting updates, corporate priorities remain focused on liquidity optimisation and ensuring financing better reaches all supplier tiers - strategic priorities he believes are unlikely to change even with the evolving disclosure requirements.



Keywords: Sibos 2024, Supply Chain, Liquidity, ISO 20022, Sustainability, Risk Management
Institution: Deutsche Bank, Financial Accounting Standards Board (FASB), International Accounting Standards Board (IASB)
Region: Asia Pacific
People: Atul Jain
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