New trade finance providers step into de-banking void

New providers of trade finance are stepping into the increasingly large void left by major players in emerging markets according to an article in The Economist.

It explains how major players are retrenching from difficult sectoral and geographic markets on account of compliance costs and the recent spate of fines and investigations involving the world’s largest financial institutions.

Compliance costs

The cost of vetting a new customer to ensure compliance with laws on money laundering and finance for terrorism can reach $75,000 according to the article.

This means many banks with global operations are slowly but steadily deserting emerging markets and making larger clients their priority now.

Geographical banking shifts

Some large banks, including US banks such as Citi, are staying in more difficult markets if they have relatively lightly leveraged balance sheets.

But more highly leveraged European banks – the traditional source of trade finance in major trading centres such as London and Switzerland – are finding it harder to stay active in emerging market trade finance.

Dubai is trying to set itself up as a trade-finance hub in competition, but lenders in the Gulf are often too small to handle larger transactions according to The Economist.

Alternative providers

It says non-banks are also taking an interest, including outfits such as Mauritius-based Barak Fund Management, which attracts investors looking for high short-term interest rates in return for lending money for commodity trades.

Such funds represent a tiny slice of the trade finance market, but it is a fast growing one according to The Economist.

The full article in The Economist can be found here.


Categories: Trade Based Financial crimes News

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