Michelle Hui, head of trade business development, Asia Pacific, treasury services, BNY Mellon, discusses the complex trade environment and how collaboration can help fuel trade.
May 01, 2017 | Michelle Hui- Despite a challenging landscape, Asian trade remains resilient
- And yet, de-risking is disrupting the dynamics of world trade and creating a massive trade finance gap
- Collaboration can help ensure local businesses receive the support they need to grasp the region’s opportunities
Global trade is experiencing significant change, and economic and political uncertainty is impacting key trading relationships in Asia. For instance, while trade growth between the US and Asia has been robust in recent years, the increasing trend for protectionism and anti-globalisation could have a huge impact on access to US markets, and thereby threaten Asian export volumes. Elsewhere, China’s economic slowdown has been a key concern, with economists predicting that commodity exporting countries will be particularly affected by weakened demand.
Yet, despite these turbulent times, recent figures indicate that growth in ASEAN, for instance, has been relatively unfazed by headwinds in 2016, with GDP growth reaching 4.7% in both Q4 2016 and Q1 2017, according to FocusEconomics. What’s more, combined GDP in the ASEAN-5 nations (Indonesia, Malaysia, the Philippines, Thailand, and Vietnam) is estimated to increase by around a third to $3 trillion by 2020. Such growth could be fuelled by a shift in commodity demand from China to emerging Asian markets themselves – especially with ASEAN’s population predicted to rise from 600 million to 700 million between 2010 and 2030.
Furthermore, countries focused on the production and export of consumer goods and services could potentially benefit from China’s efforts to rebalance to a more consumer-driven economy, and the Chinese revaluation may boost manufacturing activity in Southeast Asia.
Certainly, there is a great deal of opportunities for Asian trade – and the region’s potential is being further supported by significant infrastructure investment from countries such as China and its Asian Infrastructure Investment Bank initiative.
Barrier to trade
That said, another particularly important trend has emerged that hampers the ability for many local companies to capitalise on the opportunities emerging across the region.
The substantial rise in compliance costs means that many larger banks are retreating from certain geographies or business sectors, such as smaller or riskier markets and small and medium enterprises (SMEs). This “de-risking” by banks is creating a huge trade finance gap – estimated by the Asian Development Bank to be $1.6 trillion globally.
With nearly $700 billion of unmet demand in developing Asia, it is an issue that needs to be addressed. Asia has the consumer base, the companies and a hunger for growth, but it all amounts to very little unless trade in the region receives the financing it requires. Although many regional banks are attempting to help fill the gap, they often lack the cross-border coverage and capabilities required to undertake large-scale volumes.
Bridging the gap
Banks have a huge role to play in ensuring trade keeps flowing, and without doubt, correspondent banking – long a keystone of global trade – remains a crucial facilitator of robust trade growth. It is important to note that, despite the degree of de-risking evident in many developing countries, there are global banks actively looking to support those underserved markets. Certainly, correspondent banking can very much be an option in emerging Asia.
Not only can partnerships between local and global banks help to renew buoyancy in trade, they are powerful means for banks to share expertise and capabilities in order to provide the very best trading experience for clients. The combination of unsurpassable local insights, global connections and sophisticated technology can help ensure trade opportunities are leveraged to the full.
While it is important that banks do all they can to proactively address the trade finance gap, it cannot be resolved by banks alone. With negativity around trade making headlines – often due to political agendas – the industry as a whole must reiterate the importance of global trade. Through collaboration and innovation, we can capitalise on this new environment, and provide local businesses with the tools to harness the region’s opportunities and drive business growth.
Michelle Hui is the head of trade business development, Asia Pacific, treasury services at BNY Mellon. The views expressed herein are strictly of the author.
Categories:
Risk Management, Trade Finance, Transaction BankingKeywords:BNY Mellon, De-risking, SME
