World’s Best Banks 2007

World’s Best Trade Finance Banks 2007

Global Finance selects the leaders in a specialized area of finance that is changing rapidly

Global trade finance has become an extremely competitive business, mainly suitable for financial institutions with economies of scale or special expertise. Most international trade is now done on an open-account basis, as corporations have come to know their suppliers better and are less willing to pay the fees associated with letters of credit (LCs) and other forms of bank guarantees.

While open-account trading is the least secure method for exporting, it represents about 70% of world trade, according to a report by Boston-based Celent, a research and advisory firm that helps banks develop business and technology strategies. Only about 15% of trade is done with the safety net of an LC, with the remainder relying on various documentary collection and related techniques.

“Since the trade finance business is globally flat, the best way for leading players in trade finance to increase their volume of business is to acquire market share from the competition,” according to Celent. In order to benefit from the consolidation in the industry, the leading banks are centralizing trade finance operations in regional hubs, investing in technology and providing outsourcing services to other banks.

Cash management and trade finance products are being integrated with working capital management and supply-chain services. At the Sibos meeting in Sydney last October, bankers were eagerly anticipating the launch of the Trade Services Utility, or TSU, a bank-to-bank central matching and rules-based engine. TSU operates under SWIFTNet’s messaging system and could help banks automate trade processes and reduce back-office costs.

“The TSU is an evolution from the current product suite,” says Antonio Bizzo Lima, general manager of foreign trade and exchange products at Banco do Brasil. “It will help companies reduce costs and help banks enhance their finance and credit products,” he says. TSU uses standardized data and a rulebook that defines the roles and responsibilities of participants. Some 19 pilot banks are using the system, which will become more widely available later this year.

Just-in-time manufacturing techniques and the introduction of supply-chain management have reduced the size of individual shipments. A trade deal under $1 million is generally not profitable for a bank to provide trade finance services, according to Celent. And since the value of each shipment is small, the non-payment risk is lower, obviating the need to substitute the credit of a bank for that of the customer. The trade finance business is undergoing tremendous change, but banks that have made the investment in trained staff, technology and global networks are still able to make a go of it.

In our seventh annual survey of the World’s Best Trade Finance Banks, Global Finance editors, with input from industry analysts, corporate executives and technology experts, chose the leading trade finance banks in 57 countries or regions, as well as the best online trade finance provider.

Criteria for choosing the winners included transaction volume, scope of global coverage, customer service, competitive pricing and innovative technologies.
Gordon Platt http://www.gfmag.com

WORLD’S BEST BANKS 2007
ANNUAL SURVEY / WORLD’S BEST BANKS

At a time when the world economic outlook is more uncertain than it has been in years, the banking industry finds itself at the vortex of a financial market storm that originated in subprime mortgages in the United States and has spread to global money, debt and equity markets. “Unlike periods of financial turbulence I have witnessed over many years, this turbulence wasn’t precipitated by problems in the real economy,” says US Treasury secretary Henry Paulson. “This came about as a result of some bad lending policies.”

In a press conference following a meeting in Washington, DC, last month with chief executives from several leading mortgage lenders, Paulson said the financial turbulence was all happening against the backdrop of a strong economy.

How consumers react to the housing meltdown, however, could be the key to whether the US economy can skate around the edges of recession. Meanwhile, the seizing up of the money markets this summer prompted central banks to pump out billions of dollars on an almost daily basis to try to restore normalcy.

The Federal Reserve and other central banks were faced with a serious problem of trust in the banking system, as commercial banks and financial institutions became fearful of lending money, even overnight, to one another. At times like these, trust and reputation become of paramount importance to banks and their customers.

As Global Finance celebrates its 20th anniversary, our editorial team has identified the best banks in 110 countries, as well as the best banks globally in nine key banking categories. In one comforting sign of stability, the leading global banks are all repeat winners from last year. On a country-by-country basis, however, there are 31 changes in winners from last year. We have been presenting these awards since 1997.

Bad lending policies have haunted many banks over the years, and there have been massive cleanups of non-performing loans recently in such major countries as Japan and China. Bank capital increases and improved risk management under Basel II and other initiatives have strengthened the financial systems in many nations. The ongoing consolidation in the banking industry worldwide reflects the need for scale, as financial institutions amass the resources needed to invest in costly systems and trained staff to operate efficiently, safely and profitably.

Some of these trends have been around for years and likely will continue. Suddenly this summer, however, the credit cycle turned down with a vengeance. The environment has clearly changed, and the era of easy credit for leveraged buyouts has ended. The banks that are able to adapt best to change will survive and prosper. Stricter lending standards seem likely to be imposed, and growth of the financial services industry could slow, at least in the near term. Banks are being asked to increase lending at a time when they may have less appetite for it, as back-up lines of credit are being used more frequently.

The best banks are those that understand the needs of their customers and provide the products and services that are in demand and that produce mutual success. In selecting this year’s winners, as usual we considered factors that range from the objective to the informed subjective. Objective criteria included growth in assets, profitability, geographic reach, strategic relationships, new business development and product innovation. Subjective criteria included the opinions of equity and credit-rating analysts, banking consultants and others in the industry.

Within this listing of the World’s Best Banks, we have included our April 2007 list of the Best Developed Market Banks and our May 2007 list of the Best Emerging Market Banks.

Contributors: Paula L. Green,
Antonio Guerrero, Anita Hawser,
Laurence Neville and Gordon Platt

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