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Going beyond the rhetoric, trade outlook is bright.

Summary: New technologies and financing ecosystems reduce funding risks

Babu Das Augustine, Banking Editor


The recent rise in rhetoric on a global scale trade war is over exaggerated and nations will recognise the importance of trade to global growth, Farooq Siddiqi, Global Head of Trade and Transaction Banking, Standard Chartered told Gulf News in an interview.

Globally all countries are members of the World Trade Organisation (WTO) and despite the recent trade war rhetoric, he expects most of the international disputes to be resolved within the framework of WTO's arbitration process.

"The potential tit-for-tat actions in trade related disputes will harm global trade and it will have an impact on every country in areas ranging from economic growth, employment and inflation. No one is going to benefit from trade wars, although in short to medium terms the rhetoric around these disputes are likely to persist, I believe, eventually, sanity will prevail," said Siddiqi.

World trade recovered significantly from the second half of 2017 compared to the decline in trade volumes in 2015 and 2016. It recovered on the back of strong economic revival in some of the key countries such as China. China has been one single important driver of global trade because of its sheer size and the demand it generates. Firming up of commodity prices also indicate a recovery in demand that has helped the trade volumes growth. More over the projections on world GDP growth by the IMF and the World Bank show higher growth forecast for next two years that supports further improvement in trade volumes.

Despite such positive outlook, if the trade related disputes develop into a full-blown multilateral trade war, Siddiqi said it could hurt global trade volumes. The implications of recent trade dispute will depend on the number of goods that are going to impacted and what per cent they constitute in the global trade.

Trade finance

Banks are facing challenges relating to trade finance ranging from new capital rules, stringent KYC (know your customer) and other compliance requirements. Standard Chartered with its second largest market share globally in documentary trade has a well-entrenched position in global trade ecosystems. The bank mitigates most of the trade financing risks by working closely with these ecosystems.

"A lot of sourcing for the multi-nationals are done from small and medium enterprises [SMEs] in Asia. While financing of SMEs could be risky, the risk is largely mitigated when supplier financing is done within the trade ecosystem where the buyer and supplier are directly linked," said Siddiqi.

To enhance trade and making trade finance available to a larger customer base the bank is doing a big push on the technology front. "Now the biggest buzzword in trade and trade finance is the blockchain. We have already done a few POCs [proof of concept] in verifying documents in trade transactions. We have also done live transactions using blockchain where a large logistics company with a blockchain enabled platform verified the documents and an insurer used these documents to insure the transaction and we financed the trade deal. Clearly digitisation is the future of trade and trade finance," he said.

A number of countries/jurisdictions such as Singapore and Hong Kong are working on creating national trade platforms that are digitally enabled. Once these platforms are developed, one of the key challenges in trade finance that is financing SMEs will become much easier as their creditworthiness and KYC becomes visible to all on the platform.

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Publication:Gulf News (United Arab Emirates)
Date:Mar 11, 2018
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