Corporate Feb 21, 2012
London: HSBC, Europe's biggest bank, bucking the trend among some European banks, is increasing its exposure to trade finance by making 4 billion pounds of credit available to small and medium-sized enterprises that trade, or are planning to trade, internationally.
The launch of the HSBC International SME Fund reflects the bank's view that global trade will enjoy sustained growth in coming years, especially in Asia and Latin America, offering opportunities for firms in Britain and elsewhere that are willing to look beyond their home markets.
"We are ringfencing a portion of our balance sheet to ensure funding is there at a higher level for those international SMEs that want to trade," said Alan Keir, global head of commercial banking at HSBC.
HSBC, Europe's biggest bank, is the market leader in global trade finance with a 9 percent share, according to an analysis by an independent consultancy.
Last year it facilitated trade worth $500 billion and booked revenues in doing so of $2.5 billion - a sum it hopes to double in four or five years.
Keir declined to go into detail but said HSBC's global trade financing business was stronger than expected last quarter, except in France.
HSBC is building its trade financing book at a time when some other banks, under pressure to shed assets to meet mandatory capital adequacy ratios, are pulling in their horns.
French banks, which account for a quarter of global trade finance, have been particularly affected by dollar funding shortages for euro zone lenders, the Bank of England said in its most recent Financial Stability Report.
"The euro area is the United Kingdom's largest export market and so a reduction in the availability of trade finance could constrain UK exporters," the bank said.
Keir said some European banks had scaled back their international ambitions to focus on their domestic balance sheets, offering opportunities for HSBC and others.
"It hasn't stopped the global banks continuing to lend, and it hasn't stopped the emergence of some very good competitors from faster-growing markets," he said.
These included Industrial and Commercial Bank of China , India's ICICI Bank , DBS Group Holdings in Singapore and Brazil's Banco Bradesco . US banks, flush with liquidity, had also helped to fill the void.
Despite the world economy's dependency on snaking supply chains, no one compiles authoritative figures on trade finance -- a sore point among researchers who tried to get to the bottom of why global trade volumes collapsed 20 percent in the aftermath of the failure of Lehman Brothers in 2008.
Survey evidence suggests no repeat of that meltdown. The European Central Bank reported that bank lending practices tightened further in late 2011, but the Federal Reserve's latest poll of senior loan officers showed no sign of a credit crunch.
And the most recent survey of bank lending in emerging markets conducted by the Institute of International Finance, an industry group, showed that trade finance conditions continued to improve, especially in Asia, despite a severe tightening in other categories.
"It suggests that the carpet is not going to be pulled out from under the feet of shippers, at the moment at least," said Zahra Ward-Murphy, an economic analyst with Absolute Strategy Research, a London consultancy.
Indeed, she said year-on-year shipping volumes in South Korea and China had risen in January despite the disruptions to business from the early Lunar New Year holiday.
"There are tentative signs that trade growth rates, which had been heading down to zero, are stabilising and turning round," she said.
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