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A SHIFTING GLOBAL TRADE ENVIRONMENT: HOW TRANSACTION BANK ADAPTATIONS WILL BENEFIT CORPORATES

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A SHIFTING GLOBAL TRADE ENVIRONMENT: HOW TRANSACTION BANK ADAPTATIONS WILL BENEFIT CORPORATES 1

Transaction banks are responding to changes in the global trade environment by driving internal efficiencies, broadening their digital offerings, and reconfiguring their client service models. Amidst this change, the outlook for corporates is promising – increasingly digital and client-centric solutions, combined with fairer and more competitive pricing, say Raphael Barisaac and Adeline de Metz, Global Co-Heads of Trade Finance at UniCredit

In the face of a shifting global trade environment, the onus is on transaction banks to stay ahead of the curve. Documentary trade finance instruments such as letters of credit are diminishing in popularity in favour of open account trading, while regulatory and due diligence requirements are adding necessary, but significant, costs to banks’ books.

Raphael Barisaac

Raphael Barisaac

Indeed, the convergence of these trends has prompted many banks to rethink their operating models from the top down. Improving internal efficiency, streamlining client service models, and collaborating with fintechs to produce new, holistic and client-focused solutions are all emerging as ways to ensure future stability and continue to drive improved services.

For banks’ corporate clients, these are exciting changes – heralding faster, cheaper, and more tailored solutions, underpinned by improved bank-client relationships.

Regulations catalysing change

Regulations, of course, are one of the key factors sparking change in the industry. Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements have been frequently cited in this capacity, but there is another set of regulations having a significant impact on trade finance – the Basel Accords’ risk-weighted-asset (RWA) requirements. Under Basel III, banks are required to hold a minimum amount of capital in reserve to reduce risk of insolvency. This is determined by a bank’s RWAs, and – while trade finance is well known as a low risk-investment – most banks lack the historical and performance data to back this up. This has a knock-on effect on banks’ willingness to offer trade finance.

This is compounded by the fact that while capital requirements don’t factor in the low-risk nature of trade finance, market prices do. Trade finance is therefore a capital-intensive product, bearing relatively low returns. This puts it under intense pressure when assessed purely on a profitability basis – and some banks may choose to raise their prices, reallocate a part of their trade finance funds to other products or even cease trade lending altogether. Of course, not all banks view trade finance in this way – instead, some are less focused on returns and more on maintaining key client relationships, as well as forging new ones.

Either way, bank RWA modelling issues – along with other compliance costs – are acting as drivers of internal efficiency for the majority of transaction banks, with many looking to upgrade their IT and back-office systems.

Adeline de Metz

Adeline de Metz

A more focused approach

At the same time, many banks are rethinking how they serve their corporate clients– an initiative that has largely gone under the radar thus far. Increasing client segmentation – by geography or industry, for example, or into brackets such as “platinum” or “gold” – may enable banks to significantly improve their client service.

For corporates, this could mean a greater availability of services, greater choice, and more competitive pricing – but they should consider their bank relationships carefully. A good strategy would be to distribute trade finance requirements across a few banks, in order to hold the status of“platinum” client – securing a higher-quality service than would be received if spreading business across multiple banks as a “bronze” client.

Digital as standard

Many banks are achieving efficiency gains through other means, too – looking closely at new technologies, such as blockchain, as well as existing tools such as the Bank Payment Obligation (BPO). Corporates, again, stand to benefit –standardised, more efficient, and cheaper digital products will serve a greater variety of companies, from a wider spread of industries and geographies. In particular, offering digital services more widely will enable banks to establish a baseline service level, guaranteeing a high-quality service for all clients – and not just those in the “platinum” segment.

As part of this drive towards increasingly digital services, many banks are also looking to collaborate with fintechs. Indeed, the risk appetite and tailoring required for so many transactional products and services make it unlikely that fintechs will replace banks as trade finance providers – making collaboration the most promising avenue for all parties. Transaction banks can also draw on their extensive market knowledge to advise businesses on the most promising fintech opportunities. Certainly, at UniCredit we have seen increasing demand for this kind of support – with many clients keen to draw on our insight into the crowded fintech landscape. Our view is that there is plenty of scope for profitable, mutually beneficial partnerships.

Supply chain finance– opening up the options

Supply chain finance stands as a clear example of this potential. As corporates increasingly align the objectives of their procurement and treasury departments,they are becoming increasingly focused on strengthening their supply chains, in addition to habitual concerns such as DPO, DSO and other key performance indicators (KPIs). Supply chain finance is invariably part of the conversation.

Indeed, the growing use of supply chain finance runs in parallel with banks taking an increasingly holistic approach to their supply chain finance solutions. Rather than a siloed product offering within the bank, banks are adopting more open, collaborative models where fintechs can make significant contributions. Through bank-fintech collaboration, comprehensive, sophisticated solutions are being developed, and this is a model that banks are increasingly looking to employ – combining bank expertise and fintech innovation to create client-centric solutions beyond what either party could deliver alone.

Developments such as this give corporates every reason to be optimistic – despite the challenges of the current environment. Banks are finding ways to adapt – tightening their service models and developing streamlined, digital products for their clients. Corporates that take a careful approach and cultivate deep relationships with a few banks will be best placed to take advantage – enjoying the fruits of more digitalized, more convenient and more comprehensive services.

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OPEC+ to weigh modest oil output boost at meeting – sources

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OPEC+ to weigh modest oil output boost at meeting - sources 2

By Ahmad Ghaddar, Alex Lawler and Olesya Astakhova

LONDON/MOSCOW (Reuters) – OPEC+ oil producers will discuss a modest easing of oil supply curbs from April given a recovery in prices, OPEC+ sources said, although some suggest holding steady for now given the risk of new setbacks in the battle against the pandemic.

The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, cut output by a record 9.7 million bpd last year as demand collapsed due to the pandemic. As of February, it is still withholding 7.125 million bpd, about 7% of world demand.

In January OPEC+ slowed the pace of a planned output increase to match weaker-than-expected demand due to continued coronavirus lockdowns. Saudi Arabia made extra voluntary cuts for February and March.

Three OPEC+ sources said an output increase of 500,000 barrels per day from April looked possible without building up inventories, although updated supply and demand balances that ministers will consider at their March 4 meeting will determine their decision.

“The oil price is definitely high and the market needs more oil to cool the prices down,” one of the OPEC+ sources said. “A 500,000 bpd increase from April is an option – looks like a good one.”

A rally in prices towards $67 a barrel, the highest since January 2020, the rollout of vaccines and economic recovery hopes have boosted confidence the market could take more oil. India, the world’s third biggest oil importer, has urged OPEC+ to ease production cuts.

Saudi Arabia’s voluntary cut of 1 million barrels per day (bpd) ends next month. While Riyadh hasn’t shared its plans beyond March, expectations in the group are growing that Saudi Arabia will bring back the supply from April, perhaps gradually.

Some OPEC+ members also anticipate that the Saudis will be willing to ease cuts further, but it was not clear if they had had direct communication with Riyadh.

Saudi Arabia has warned producers to be “extremely cautious” and some OPEC members are wary of renewed demand setbacks. One OPEC country source said a full return of the Saudi barrels in April would mean the rest of OPEC+ should not pump more yet.

“The Saudi voluntary cut will be back to the market,” the source said. “I’m personally with no more relaxation, not until June.”

Russia, one of the OPEC+ countries which was allowed to boost output in February, is keen to raise supply and a source last week said Moscow would propose adding more oil if nothing changed before the March 4 virtual meeting.

(Additional reporting by Rania El Gamal and Nidhi Verma; Editing by Elaine Hardcastle)

 

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UK’s Sunak to build bridge to recovery with more spending

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UK's Sunak to build bridge to recovery with more spending 3

By William Schomberg

LONDON (Reuters) – British finance minister Rishi Sunak will next week promise yet more spending to prop up the economy during what he hopes will be the last phase of lockdown, but he will also probably signal tax rises ahead to plug the huge hole in the public finances.

Sunak, who is due to announce a new budget plan on March 3, has already racked up more than 280 billion pounds ($397 billion) in coronavirus spending and tax cuts, pushing Britain’s borrowing to a peacetime record.

Prime Minister Boris Johnson plans to lift England’s current lockdown entirely only in late June so Sunak is expected to rely heavily on the debt markets again.

His job retention scheme, paying 80% of employees’ wages, will probably be extended beyond a scheduled April 30 expiry date, further inflating its estimated cost of 70 billion pounds. Support for the self-employed looks set to stay too.

Businesses are demanding Sunak keep other lifelines, such as exempting the firms hardest hit by the lockdown from property taxes and giving them a value-added tax cut.

And calls are growing for an extension of a 20 pounds-a-week emergency welfare increase due to expire in April.

The Times newspaper said Sunak would prolong his stamp duty property tax break for three months until the end of June.

Sunak hopes that by then Britain will be emerging from its deep freeze thanks to Europe’s fastest vaccination programme.

Bank of England Chief Economist Andy Haldane likens the economy to a “coiled spring” primed with the savings that households have built up after being stuck at home.

A strong recovery would mean a jump in tax revenues, doing some of the Treasury’s job of fixing the public finances.

Rupert Harrison, an aide to former finance minister George Osborne, said Sunak should not try to slash Britain’s 2.1 trillion-pound debt mountain, equivalent to 98% of GDP – a ratio unthinkable for decades.

Instead he should write new budget rules tied to the cost of debt servicing, which is close to record lows.

“We can safely carry higher levels of debt than before,” Harrison told a webinar organised by Onward, a think-tank.

But the scale of Britain’s borrowing is raising questions about how long Sunak and Johnson can stick to their promises not to raise key taxes, made to voters before the 2019 election.

BROKEN PROMISES?

The huge costs of tackling the worst of the coronavirus pandemic are likely to ease in the months ahead, meaning this year’s 400 billion pound budget deficit should narrow.

But Britain is probably on course to be stuck with a gap of 60 billion pounds between revenues and day-to-day spending by the mid-2020s, the Institute for Fiscal Studies think-tank says.

In a nod to that, Sunak is expected to start raising Britain’s low corporation tax rate.

The Sunday Times said the rate would rise steadily to bring in an extra 12 billion pounds a year by the time of the next election, due in 2024.

Other options include ending a freeze on fuel duty increases which has been in place since 2012 and looks at odds with Britain’s plans to be carbon net zero by 2050.

But higher fuel prices now would hurt the haulage industry, already struggling with Brexit-related disruption, and could alienate working-class voters who backed Johnson in 2019.

Higher capital gains tax or lower pension incentives would anger lawmakers in Johnson’s Conservative Party.

David Gauke, a former deputy finance minister, said the only big revenue-raising options were the ones that Johnson has promised not to touch – income tax, VAT and national insurance contributions.

“In the end, they are going to have to say, sorry we just can’t responsibly maintain that manifesto commitment,” Gauke told the Onward webinar.

($1 = 0.7046 pounds)

(Writing by William Schomberg; Editing by Catherine Evans)

 

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Women inch towards equal legal rights despite COVID-19 risks, World Bank says

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Women inch towards equal legal rights despite COVID-19 risks, World Bank says 4

By Sonia Elks

(Thomson Reuters Foundation) – Women gained legal rights in nearly 30 countries last year despite disruption due to COVID-19, but governments must do more to ease the disproportionate burden shouldered by women during the pandemic, the World Bank said on Tuesday.

Nations should prioritise gender equality in economic recovery efforts, the bank said, warning that progress on equal rights was threatened by heavier job losses in female-dominated sectors, increased childcare and a surge in domestic violence.

“This pandemic has exacerbated existing inequalities that disadvantage girls and women,” David Malpass, World Bank Group president, said in a statement accompanying the annual “Women, Business and the Law” report.

“Women should have the same access to finance and the same rights to inheritance as men and must be at the centre of our efforts toward an inclusive and resilient recovery from the COVID-19 pandemic.”

A total of 27 countries reformed laws or regulations to give women more economic equality with men in 2019-20, said the report, which grades 190 nations on laws and regulations that affect women’s economic opportunities.

While countries in all of the world’s regions made improvements in the new index – with most reforms addressing pay and parenthood, women on average still have only about three quarters of the rights granted to men, the report found.

Notably, nearly 40 countries brought in extra benefit or leave policies to help employees balance their jobs with the extra childcare needs created by coronavirus restrictions.

But such measures were “few and far between” worldwide and will probably not go far enough to tackle the “motherhood penalty” many women face in the workplace, it said.

The report also noted separate data from a United Nations tool tracking gender-sensitive pandemic responses which found 70% of such measures addressed violence, with just 10% targeting women’s economic security.

The pandemic could result in “a backslide on various hard-won advances in women’s rights achieved in recent years”, said Antonia Kirkland, the global lead on legal equality at women’s rights organisation Equality Now.

“This disruption is a unique opportunity for countries to rebuild more resilient, inclusive and prosperous economies,” she told the Thomson Reuters Foundation by email.

“But this can only be achieved alongside the removal of sex discriminatory laws that prevent women from participating fully and equally in economic, social and family life.”

(Reporting by Sonia Elks @soniaelks; Editing by Helen Popper. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers the lives of people around the world who struggle to live freely or fairly. Visit http://news.trust.org)

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