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Asian Banks May Just be At the Centre of the Trade Finance Boom

The region is expected to account for over a third of trade flows by 2020.

As global trade flows increasingly shift its centre to Asia, banks must double down to capture trade finance opportunities that arise in an industry that has processed over $9t in transactions in 2017, according to a report from the International Chamber of Commerce.

The median transaction volume reported in APAC was about 36,000 transactions for the year to a total value of $2.15t, nearly double the level processed in North America, and about 10 times the median volume in Africa.

“Asia-Pacific is still in a pole position: as an anchor for large portions of trade financing globally, which reflects the fact that major global supply chains and trade corridors are anchored or linked to the region,” ICC noted.

Asia-based corridors are expected to grow between 4% to 9% a year from 2017 to 2026 to represent more than a third (38%) of global trade flows by 2020 whilst the US share is expected drop to 8.7% over the same period as emerging regions like Asia and Middle East with high levels of documentary trade take center stage.

Banks are therefore zeroing in Asia to capture the wealth of opportunities presented by the high levels of documentary trade in the region. In fact, nearly nine in ten (88%) of global banks have explored new markets in APAC, whilst 87% looked to western Europe and 82% to North America.

Lenders headquartered in the Middle East shared the same sentiment as nearly 79% said that they explored APAC – almost twice as much as their own market (43%) whilst banks in Western Europe were most likely to have explored APAC (54%) as opposed to their own market (35%).

The growing internationalisation of the renminbi is also expected to lend support to the Asian cause as growing use of renminbi for trade transactions could direct the focal point in global trade to the APAC.

It comes as no surprise that banks headquartered in APAC (89%) alongside those in Africa (81%) had the most positive outlook in both traditional trade finance and supply chain finance.

Priority areas for the coming years remain attracting non-bank capital and leveraging on emerging technologies like blockchain to enhance operational efficiencies in the heavily paper-based industry.

 

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