Four International Trade and Forfaiting Association weddings and a funeral - from Dubai

News | 6 November 2015

ITFA.Dubai

Clarissa Dann reports from the 42nd annual ITFA conference in Dubai that forfaiting is alive and well and it's all change on the board

When Paolo Provera addressed a packed auditorium at the Jumeirah Beach hotel in Dubai for the last time as ITFA chair,
he confessed that his earlier misgivings about venturing outside Europe to Dubai were unfounded.

Some 230 participants representing around 30 countries set an all-time record for the professional body's main annual gathering, and the choice of location has widened ITFA's Middle East reach.

"While we have tried to cover the full spectrum of trade finance, we should never forget that forfaiting is the heart of our association," said Provera.

The 42nd annual conference had themes of endings, beginnings and continuations, not least of which because there were ITFA board changes. In my preview, "All aboard!"1, I recalled how one delegate said attending these conferences was like being at a wedding and was made to feel part of the family. Having had four "weddings" under my TFR belt, this year my thoughts had been propelled to the other end of the life spectrum.

"Our personal thoughts go to a friend of ours. You remember Kendrick, the man with the pink camera, he passed away a few days ago2 and I would like you to raise a glass to him tonight", added Provera. Kendrick Struthers Watson was my partner, who had had joined me in Dubrovnik and Barcelona, and had helped out as photographer at many events. It was a testament to the inclusiveness and sense of family at these gatherings that I felt able attend, knowing I would return to his funeral. And we did raise our glasses that evening - in our flip-flops on Jumeirah Beach. The stars were particularly bright that night.

New committee

Provera closed his remarks by officially standing down as chair while remaining honorary chairman, and it was at the annual general meeting that vice chair Sean Edwards (head of legal at SMBC Europe) was confirmed as his successor. ITFA treasurer Daniel Schär also said goodbye. The line-up with new board joiners (marked*) comprises:

  • Sean Edwards, SMBC: chairman.

  • Damian Austin, formerly Barclays: deputy chairman and head of regions (he left Barclays on 14 October).

  • Lorna Pillow, London Forfaiting Company: head of communications and membership.

  • Silja Calac, Swiss Re Corporate Solutions: head of insurance and treasurer.

  • Paul Coles, Bank of America Merrill Lynch: head of market practice.

  • *Chris Hall, Lloyds Bank: head of young professionals.

  • *Zeyno de Vries-Davutoglu, Credit Europe Bank: head of education.

  • Jing (Jane) Li, Bank of China: head of Asia.

  • *Anurag Chaudhary, Citi, head of institutional relations.

Board papers indicated that the ITFA was in good shape and profits are being invested into market practice, regional committees and more marketing and communications.

 

Economic winds of change

 

First on the conference podium was Lloyds Bank Commercial Banking's chief economist Professor Trevor Williams. He said the "gale blowing through the global financial markets and relationships" was the result of "huge demographic changes underway in the world, adoption of the market economy and best practices, and the spread of information technology." Three factors dominated the outlook for the second half of 2015:

  • the imminent start to the normalisation of US - and eventually UK - interest rates;

  • the greater-than-expected weakness of the Chinese economy, with possible policy reversals; and

  • the continued fall in commodity prices (the last two are inter-connected).

One month after the conference, we now hear that Federal Reserve may have an increase in short-term interest rates on the table by December (it has not lifted rates since 2006). This long period of low rates, said Williams, is "telling us that the crisis is not yet over". He made repeated references to the likelihood that US rates are likely to rise before those of other advanced economies - an indicator of its more balanced economy and its head start in 'normalising' rates - but this could have repercussions for the global economy.

"The fact that the shock in China has transmitted itself to the rest of the world shows how much relationships have changed," he pointed out before moving onto the commodities prices' continued fall. This, he said, exposed the frailty of those economies dependent on commodities exports. "The decline in oil prices is positive for advanced economies and some emergers but there are significant losers as well among the oil exporters."

"The slow growth in world trade is leading to another year of below trend GDP growth," he observed (see Figure 1). But Williams remained optimistic about global growth and trade in medium term, driven, he says, by improving trade links, the adoption of best practices and demographics.

Insurance and supply chain

In recognition of the fact that insurance has become an increasingly important part of international trade finance, ITFA set up its new insurance committee on 18 August 2015, chaired by ITFA board member Silja Calac with Willis's David Neckar as secretary.

It was formally announced at the Dubai conference. Calac said, "There are many different insurance products which support banks in their task to forfait receivables, finance trade or issue guarantees and letters of credit. But bankers as well as brokers and insurers are often complaining that this cooperation is not as smooth as it should be: lack of information, misconceptions, regulations, internal barriers often hinder insurance companies from providing efficient protection to transaction banking."

Key objectives of the committee is to promote a deeper understanding of the role insurance plays in trade finance, and of the support which ITFA members need in order to make cooperation between banks and insurance smoother. Also, education is considered a top priority of the committee.

In a presentation that focused on the banks' use of credit insurance as a risk mitigant and a means of obtaining regulatory capital relief (the insurer's policy takes the place of the borrower's credit exposure), David Neckar set the scene for why insurance is such an important tool.3

"We have seen a huge pressure on liquidity, accompanied at the same time by a very difficult shrinkage in the economy, which has meant there are more banks looking to develop opportunities with plenty of capital in a field that has shrunk, but where regulation has grown exponentially." Lack of understanding of what credit risk insurance can do for banks and businesses was, he said, one of the main reasons why its use was not more widely developed. The ITFA is determined to put this right.

Less dramatic but no less illustrative of the role of ITFA in the increasingly broad and cross-pollinating world of trade receivables finance were presentations on the ICC’s Supply Chain Finance Definitions project from Abhijit Prasad of HSBC and, to round off the conference from Edwards, on the Basel III opinion commissioned by ITFA from Sullivan &Worcester on the credit risk mitigation status of the BAFT master sub-participation agreement. The Supply Chain Finance Definitions will be shaping TFR's coverage of SCF as they evolve, but for the moment it is sufficient to say that forfaiting is acknowledged as one of the leading techniques in this field. The Basel opinion is, as Edwards said, a “present” to ITFA’s members: a cost –effective way of dealing with one of the myriad impacts of Basel on trade finance.

Forfaiting to the rescue

One of the highlights of the conference programme was the panel session chaired by the ICC Banking Commission's charismatic Vincent O'Brien on originating, financing and distributing trade receivables. Panellists included Damien Austin, FIMBank's Simon Lay, HSBC's Abhijit Prasad, and Emirates NBD's Faisal Lalani.

When asked for an example of a "war story", one panellist shared how his bank had "put a classical forfaiting structure around what was traditionally a receivables financing facility", and had "moved an invoice discounting facility into a syndicated bills of exchange structure to eradicate performance risk on the seller". He continued, "The bill of exchange gave certainty of payment and removed some of that performance risk. The seller got into financial difficulties, but the structure we put around that protected not just us but the other banks in the eight-bank syndicate and nobody lost a penny because of the structure we put in".

Whoever said forfaiting was dead?

 

Clarissa Dann is the editor-in-chief of TFR

References: 

References

  1. See www.tfreview.com/node/12570

  2. See www.tfreview.com/node/12639

  3. See David Neckar's article based on that talk explaining credit insurance at www.tfreview.com/node/8597

RECEIVABLES FINANCE: ITFA WORLD

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