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New forms of growth in Asia keep trade finance robust
Although geopolitical tensions have escalated in recent years, trade finance business has remained robust – fuelled, in part, by new opportunities opening up in Asia.

February 06, 2020 | Luca Corsini
  • Trade finance revenues remain unaffected amidst high tariffs, trade tensions and falling trade volumes
  • Security and trust are pushed higher up corporates’ agendas, allowing trade finance to stay in demand even when trade flows drop
  • Government initiatives that stimulate global trade indicate an eastward shift of influence to Asia, and it is now up to banks to capitalise on this potential

Deepening geopolitical rifts have unsettled the global economy in recent years. On 1 October 2019, the World Trade Organisation cut trade growth forecasts for 2020 from 3% to 2.7% – representing a steady decrease from 2017’s growth rate of 4%. It may seem like bad news for trade finance, but the truth is not so clear-cut.

Despite a backdrop of economic unrest, trade finance revenues can remain stable. In fact, trade finance revenues saw a 3% increase in 2018.

One reason behind this could be that, in a climate of high risks and tariffs, security becomes a priority for corporate treasurers. Trade finance provides this, with banks forging trust between buyers and suppliers. There may be fewer trades going through, but a higher proportion of these are secured via finance. Essentially, the factors that suppress trade volumes also stimulate demand for trade finance on the deals that go ahead.

So whether the coming year will bring relief and expansion or further tension and contraction, there may yet be reason to be optimistic for trade finance in 2020.

Economic influence shifts to Asia

That’s not to say that growth in trade volumes is neither desirable nor impossible. A strong path toward further growth is the continued search of governments around the world for opportunities and investment in burgeoning Asian economies.

China’s Belt and Road Initiative (BRI) is a prime example. The BRI is one of the largest infrastructure development initiatives ever formulated, spanni...

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