29 August 2019: The International Chamber of Commerce (ICC) Banking Commission’s latest edition of its Global Survey on Trade Finance provides an authoritative review on global trade finance trends based upon interviews from over 300 banks in over 90 countries.
In this ICC guest blog, Brendan du Preez, Head of Open Account and Supply Chain Finance and West Africa Trade, Group Trade, Standard Bank, discusses some of the challenges facing banks today, as well as future opportunities to aligning trade finance practices in the future.
Compliance challenges in some of the purchase-based techniques. If we look at payables finance, as an example, the largest challenge comes in the onboarding of suppliers, specifically if such suppliers are not clients of the bank which is running the payables finance program.
Risk appetite on various parties in the value chain. Dependent on which Supply Chain Finance (SCF) technique is applied, the opportunity to support the value chain is in some cases overshadowed and limited by various risk considerations.
Cross border complexities
Cross border elements can place challenges on the legalities around some of the purchase-based techniques. Legal construct in various parts of the world is not uniform and this is no different from an African perspective.
Lack of accounting and legal standards
The lack of uniformity around the accounting treatment specifically as it relates to SCF purchase based techniques. This lack of uniformity coupled with non-standard guidance in legal standards as it relates to some SCF purchase based techniques, does mean that there are a variety of approaches the industry can take today in a SCF technique construct. Leading to slow implementation and execution, as much time is spent in the negotiation of legal construct between various parties, including banks and the like.
Industry standards and guidance
Through the ICC, in collaboration of various industry bodies, a definition paper was prepared (“ICC SCF Techniques Paper”) a few years back with an aim to bring common understanding of SCF techniques for the trade and trade finance industry. This has brought much value around common terms used today. Still there is much alignment required with various industry players to ensure that long term sustainable value can be derived through SCF techniques.
When we look at technology and the evolution of technology, the trade finance industry is moving at a fast pace. For banks involved in SCF, to remain relevant, they must balance the evolution in SCF technology with that of client need, whilst selectively and strategically collaborating with fintechs which complement their (banks) SCF technique solutions.
In summary, the challenges that banks face in SCF is not new, however the industry wide collaboration is and will continue to help minimize these challenges and in turn