Along with the rapid development of economic globalization, the requirements for trade financing business are also increasing. Multi-faceted and efficient trade financing business can promote the overall growth of foreign trade, including regulating the import and export structure and promoting the balance of payments.
It can also promote the development of international trade import and export, and facilitate a country’s effective participation in the international economy. It will also play an effective leading role in the national strategy of “One Belt, One Road” and supporting Chinese enterprises to go global.
Therefore, it is important to strengthen commercial banks’ trade financing.
1 Opportunities for commercial banks in trade finance business
Firstly, the trade financing business of commercial banks mainly refers to all financing activities related to import and export business provided by banks for importers and exporters. At the same time, it has created a huge development space for multi-level and all-round innovation in the field of trade finance of commercial banks.
Secondly, according to the overall development trend of commercial banks’ trade finance, it gradually starts to develop from low-risk settlement to high-risk settlement; from single business link to multiple business links; from static risk management to dynamic risk management; from single business financing to comprehensive financing; from customer credit to agency credit, etc.
Third, international trade financing commercial banks are increasingly strengthening strategic cooperation with logistics companies, credit insurance companies and foreign banks. Through the establishment of cross-industry or inter-industry strategic cooperation with logistics companies, credit insurance companies and third-party institutions such as domestic and foreign banks, commercial banks have expanded the ways for enterprises to obtain trade financing, so that they can obtain bank financing in the case of financial defects, insufficient collateral and guarantees.
Fourth, under the situation of loose liquidity, downward market interest rates and regulatory policy adjustment, commercial banks will actively expand low-cost core liabilities and stabilize the development of liability business. In addition, in the context of RMB internationalization, commercial banks can vigorously carry out trade financing business, seize the opportunity of rapid growth of outbound investment, combine the needs of enterprises in foreign engineering contracting, overseas project development, cross-border investment and financing and other foreign economic activities, increase support for “going out” enterprises, and package and integrate We will package and integrate services such as RMB settlement for foreign direct investment, cross-border project loans and foreign guarantees.
Fifth, China’s commercial banks began to carry out trade financing business on a large scale in the 1990s. Along with the rapid growth of China’s import and export, trade financing business has developed rapidly, and most Chinese banks have formed a more comprehensive international trade business product line, and trade settlement business accounts for an increasing proportion of the bank. Trade financing business has become one of the main business varieties of commercial banks, and its development is of increasing importance to commercial banks.
2 The great challenges faced by commercial banks in trade financing business
First, most of the teams of foreign banks in the trade finance business are composed of members of diverse nationalities. These team members have a great advantage in terms of nationalized vision and experience in mature overseas operations. Especially when serving large multinational groups, a team of international talents is able to provide targeted solutions and communication in a more rational manner. At the same time, the trade finance teams of foreign banks in China are generally small in size, but the recruited personnel usually have strong overall capabilities and can not only develop the relevant trade finance business independently, but also cooperate with the bank’s internal account managers to carry out various businesses and implement various market-oriented strategies.
In contrast, most domestic banks’ trade finance teams are too localized and do not have diversified backgrounds; the actual scope of work is still guided by the Bank’s internal regulations, and they do not have an international perspective, market acumen or the ability to innovate in terms of products.
Secondly, there are still big problems in China’s trade finance business in terms of innovation, and the lack of innovation ability and the lack of timely innovation effectiveness have brought great risks to commercial banks’ trade finance business. If we want to effectively maintain the dominant position of trade finance business and effectively meet the needs of import and export enterprises in bank financing business, we must continuously carry out product innovation, channel innovation and process innovation, so as to optimize and improve customer experience and enhance market competitiveness.
Third, generally speaking, commercial banks with better overseas branch structures have a higher degree of acceptance of overseas banks or government sovereign risks, which can effectively promote the development of domestic and overseas trade finance business. In terms of international settlement and trade finance business, overseas branches can be a springboard for local trade enterprises to understand overseas market information and customers’ creditworthiness.
At the same time, overseas branches can also become the tentacles of commercial banks in the local development, which can help commercial banks to have a sharper and more effective insight into the specific local market situation, so as to reasonably control the market risk. Nowadays, the overseas branches of commercial banks in China have been expanding but with limited coverage. For the four state-owned commercial banks, their market capitalization is among the highest in the global banking industry, but the shortcoming is that most of their assets are located in China. In particular, they still lack branches in emerging developing countries such as India and Brazil, which makes Chinese banks have limited ability to control political risks and customer risks in these sub-developed countries, resulting in the loss of business shares to foreign banks.
In contrast, large foreign banks have branches in major economies around the world to support their global business, and trade finance business also needs the cooperation of global outlets to be completed more efficiently. In addition, many foreign banks have trade finance teams in major economies around the world, which have high quality, cutting-edge, mature and efficient operation and experience in customer information sharing, system support, professional perspective and global professional operation, which contribute to the significant market advantages.
Fourth, trade finance has the natural characteristics of low capital consumption and high comprehensive return. Most trade finance products generally have lower risk asset weights than general loans and take up less risk assets of banks, which can make the credit structure more reasonable and reduce the overall risk, and are capital-saving products. At present, the trend of trade financing of flow loans has been highlighted, and it can be expected that this trend will become more significant with the rapid advancement of interest rate marketization and the implementation of new regulatory standards.
Fifth, in the process of development of trade finance business, commercial banks should strengthen cooperation with other institutions that are different from trade enterprises, such as peers and third-party institutions, which is also one of the necessary channels to meet the challenges of transformation. The expansion of business cooperation with foreign banks and credit insurance companies provides broader opportunities for product innovation, customer exploration and business enhancement in the trade finance field. All in all, the prospects of commercial banks regarding trade finance are very broad and need to be developed and studied by relevant personnel.
Sixth, commercial banks’ personnel training is more international and professional. The overall share of foreign banks’ trade finance business in China’s trade settlement market is small, but their per capita profit contribution rate is much higher than that of Chinese banks. Talent advantage is the fundamental factor for their superior profitability index. China will be an internationalized and diversified economy in the future. To improve the comprehensive quality of its own personnel and continuously enhance its international vision, it is necessary to prepare a good reserve of personnel for future international competition.
3 Conclusion
Today’s world economy is undergoing complex and profound changes, the global economy is slowly recovering and diverging in development, and the international investment and financing pattern is also transforming rapidly. China has become the second largest economy in the world, and the domestic economy has entered the “new normal”, so it is the trend to create a new pattern of outward-oriented economy.
As an important participant in economic development, commercial banks should take stock of the situation, actively carry out overseas layout, grasp the opportunity of “One Belt, One Road” strategy, improve the product range and service level of international trade financing, and actively respond to the new challenges.