THE ART OF FORFAITING
WHAT A DIFFERENCE
A YEAR MAKES
RICHARD WILLSHER looks back on a traumatic year for forfaiting and trade finance –
and to the challenges that lie ahead.
T
here has rarely been a more difficult start to
a year. 2009 opened in the aftermath of the
collapse of Lehman Brothers and the paralysis
of the financial markets that followed. Those first
months of the year were very difficult ones for trade
finance in general and for forfaiting in particular, yet,
as the year closes, the picture seems much brighter.
It is noteworthy that during the year, the forfaiting
market has shown an overwhelming preference for
deferred, trade letters of credit. Financial, non-trade
transactions with innovative structures and non-
traditional documentation took a back seat. Trade
finance was the name of the game.
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“Although the deep crisis in the banking sector
appears to be over, many banks are still going through
difficulties, even now,” says International Forfaiting
Association (IFA) Chairman Paolo Provera. “However,
turnover in trade finance at a lot of institutions has
increased during the year. While trade finance staff
have, in general, been reduced across the board there
has quite clearly been a need for banks to support their
trade finance customers. Consequently, trade finance
specialists are now in demand to support exporters.
There is a demand for know-how. For these reasons
2009 has turned out, in the end, to be a good year for
trade finance.”
 The bounce back has been more pronounced in
North America. “In the New York market we’ve had
a terrific year,” says Brendan Herley, President of The
Association of Trade and Forfaiting in the Americas
(ATFA). “In this hemisphere in general, the leading
banks, such as Bank of America, Bank of Montreal,
TD Bank, Banco do Brasil, Itau and Santander, have
beaten their budgets.
“Even the medium-sized players such as Mashreq
Bank and National Bank of Pakistan have had a
good year in the US by servicing their trade finance
clients. Overall, a number of players have come back
into the market as liquidity has increased. And they’ve
started to fund transactions again, rather than being
unfunded participants. In the past few months the
liquidity premium that all banks were confronted
with has reduced to almost insignificant levels,”
he says.
In Asian markets it has been a similar story.
“Margins are falling, especially in Singapore,” says IFA
board member Charles Brough, Director and Head of
Forfaiting & Trade Finance (Asia Pacific) for UniCredit.
“There is a general view that Singapore margins are
lower than other places because there are too many
banks here, competing with each other for a limited
amount of business. During 2009, the situation has
loosened up and people have come back to doing trade
finance. More banks are prepared to take trade risk now
than they were.”
All good news, but Bernd Sooth, who leads trade
and commodity finance at Frankfurt-based KFW
IPEX-Bank, strikes a note of caution. “2009 was a
challenging year for trade finance. A few very important
markets in Eastern Europe crashed and, therefore, the
appetite of risk management reduced for trade finance.
The most important example was the Kazakh situation
where the trade finance ‘golden rule’ looked as if it
would be broken. Fortunately, BTA Bank has granted
preference to ‘true trade’ finance debt. This is good
news for trade finance and, for the moment, the overall
market has become less stressed.
“However, Dubai may cause us problems again. It
could lead to a further crisis because a lot of money
has been lent by the banks. The past few weeks have
been better and margins have come down a little bit
and the appetites of the international players seem to
be increasing. But I’m not really sure how the events
in the Middle East and North Africa region will affect
this,” says Sooth.
The events in Kazakhstan have been closely
monitored by the IFA. In particular, the IFA’s Deputy
Chairman and Legal Advisor, Sean Edwards, has
played a vital role tracking developments with Alliance
and BTA.
The recent completion of the Alliance trade finance
adjudication process and the publication of BTA’s
restructuring term-sheet show differing approaches
to the treatment of trade finance creditors, with BTA
behaving arguably less favourably towards them.
But in both cases the emphasis has been on
showing that the financing is attached to identified
imports or exports. The protection of trade finance’s
preferred status may well have far reaching and
positive consequences for the way in which trade
finance is regarded by banks and regulators in future.
Nevertheless, Dubai now casts a shadow over the
financial markets with consequences, as yet, unknown
for trade finance in 2010.
“For trade and commodity finance, 2010 will also
be a difficult year,” continues Sooth. “The market
may still be limited, and the capital and availability
of liquidity at some financial institutions may also be
limited. They may have to do some provisioning again
and raise a bit more equity to have a buffer next year.
I think, therefore, that the market will remain tight. I
think that the first half of the year will be tough again.”
However, Sooth foresees good structured-trade
finance opportunities for exports of soft commodities
from Brazil, in particular, and suggests that European
Union exports to China and India could well make the
second half of 2010 very interesting for banks involved
in trade finance in the EU.
Interestingly, Brough’s UniCredit forfaiting and
trade finance team is moving from Singapore to Hong
Kong next year, endorsing the hopes and expectations
of many surrounding increased trade flows in and out
of the People’s Republic. He stresses that trade finance
banks will continue to have strong interest, post-
Kazakhstan, in financing real trade. ‘Synthetic’ trade
transactions will play a more limited role than in the
past, believes Brough.
Not surprisingly, Herley is also bullish about the
outlook for 2010. “As far as ATFA is concerned,
the market will grow. We’ve got a lot of momentum
because more and more people in the mid-sized
corporate world need trade finance solutions. So the
number of players in the trade finance market will
increase. I would also add that the Chinese [banks] are
here to stay and people should take note if they haven’t
done so already.”
IFA chairman Paolo Provera concludes by saying
that he sees trade finance increasing in 2010 as
confidence grows among exporters enabling them to
grow their overseas sales. “2010’s Berlin conference in
September will be the big IFA event of the year, the
first since the end of the crisis. The outlook is positive
for exports, if negative for credit. Trade finance and
forfaiting are still alive, despite the crisis…” ‰
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