 Stable ground
Scotiabank is a Canadian bank that was voted among the top ten performing banks in
the world during the financial crisis by consulting firm Oliver Wyman and is well qualified
to give an insightful take on current issues in trade finance. Alberta Cefis (top left),
Scotiabank’s executive vice-president and head, Global Transaction Banking, is interviewed
with three senior members of her team about the opportunities and challenges that
banks and their clients face in a radically changed environment.
Future Banking: Banks are driving strategies
to develop bank-to-bank relationships and
many are looking to provide services without
establishing a physical presence in their clients’
location. Smaller banks are keen to enter
relationships with larger banks in order to
access deposit, lending and related services.
How has Scotiabank adapted and leveraged its
strengths to succeed in this new environment?
Alberta Cefis: World trade that fuelled
a decade of global GDP growth actually
shrank 10% last year, which posed
immense challenges for trade finance
banks and their clients.
Companies returned to the instruments
of trade they knew and understood best in
order to mitigate risk. There was therefore
a palpable move away from open account
trading back into traditional letters of credit
(LCs). The volumes and values of those LCs
were of course down, not only because of a
diminution in terms of global trade, but also
because commodity prices were way down
from their highs of 2007 and most of 2008.
In addition, we have seen a reduction in
the relationships between trade banks and
altogether more selectivity over the partners,
countries and customers with whom they
wish to work. Successful trade finance in
such a radically altered liquidity environment,
compared with just two years ago, has
therefore become far more strategic. It is
about selective plays and selective positioning.
However, because Scotiabank
maintained its long-standing trade finance
capability when many other institutions
exited the sector, we have been able to
boost business. We are presently in some
50 countries and have an extremely strong
correspondent banking network. Last year,
we significantly grew our trade finance
revenues, primarily by continuing to
service our existing customers worldwide.
Cristian Mandachescu (vice-president,
strategy and business management, Trade
Services and Financial Institutions, pictured
bottom right): We grew because we are
a strong and focused bank, and we were
able to take advantage when other banks
retrenched from our markets. Our physical
presence in some 50 countries is a significant
and critical advantage for us in doing trade,
because it gives us the ability to generate
business by working directly with our
customers – both corporate and commercial
businesses, as well as financial institutions.
FB: How have the challenges of the
past 12 months affected Scotiabank’s
correspondent banking relationships and
how you manage risk?
Alberta Cefis: The quality of our
correspondent partners is crucial. We have
a select number of choice banks that meet
our criteria in terms of balance sheet capital,
but that also offer mutual opportunities
and are keen on doing business with us. In
Turkey, we are the only Canadian bank and,
as a result, we are the preferred provider
and correspondent to Turkish banks for any
business directed from Canada.
Eduardo Klurfan (vice-president, Trade
Finance and Financial Institutions, pictured
bottom left): Turkey is a good example of
how relationships really do count. Strong
relationships are built over time and mutual
trust is created by providing solutions and
a network that can support our clients’
businesses. Therefore, the business case for
setting up in a country is driven first by the
needs of our customers. It is through our
understanding of a country that we can
start to see the opportunities for business
development and, of equal importance, for
improved risk management.
Alberta Cefis: When our core clients were
concerned with counter-party risk, they
used to mean other corporates. Now, most
customers globally are concerned with the
risk of the other bank. The idea that a bank
involved in a transaction could add to the
risk was never contemplated before. This has
added to the complexity of the transaction
and to the risk, both real and perceived.
Cristian Mandachescu: We have
also seen a much stronger connection
between the primary and secondary
markets. The secondary market was once
used to make money. It is now being used
to complement the business that’s being
done in the primary market because, in
truth, it’s not a business in itself. Now, you
see banks, such as Scotiabank, that work
with other banks to support their clients.
FB: What has been the impact of the
financial crisis on transactional services
and what does the future hold for
correspondent banking in a volatile market?
Paul LeBlanc (senior vice-president, Trade
Services and Financial Institutions, pictured
top right): One of the key changes last year
was that companies lost sources for their
working capital. They used to be able to issue
commercial paper. But when the markets
dried up, they had to find new ways to create
working capital to run their businesses. The
LC allowed them to do that, because they
could get financing for an LC transaction.
That accounted to a large extent for the
flow away from open account transactional
activity into LCs. As we go forward and
other sources become available for them
to draw that working capital, there will be a
tendency to go back to open accounts.
Cristian Mandachescu: There has also
been an effect on the emerging supply chain
finance (SCF) market. It is based on trust,
whether through a bank or a technology
provider. Now, we’ve seen a shift back to
banks, because they, as opposed to pure
technology providers, can effect payment
– and liquidity has been one of the main
concerns during this crisis. We think that
SCF will continue to evolve and banks will
be more involved in providing the visibility
that will allow them to secure financing at
different points in the transaction.
Eduardo Klurfan: Scotiabank underpins
its trade finance capability by running an
award-winning, web-based FX trading
application that allows clients to view daily
market reports and conduct secure trading
24 hours a day. We also have a global team
that deals in all major and most minor
currencies, providing global coverage in key
financial centres and regions around the
world. We have been ranked as Canada’s
Best Foreign Exchange Bank for five years
in a row by Global Finance magazine.
FB: Thank you for sharing your views
about the opportunities and challenges in
today’s environment. Is there anything you
want to add?
Alberta Cefis: To wrap up, I think it
is important to emphasise the widely
recognised strength of the Canadian
market and banks. No Canadian bank has
needed a government bailout. We have
a strong balance sheet at Scotiabank.
The big matrix that we’ve all had to live
with this past year is less about return
on equity on transactions and far more
about return on risk-weighted capital
and regulatory capital. It has been about
seeing what really makes sense in a world
where capital is rationed, and focusing
closely on relationship management and
on the customer value proposition.
We have been able to succeed because
of our legacy as a major global trading
bank and our more than 175 years of
experience. We have also been recognised
as the Best Trade Finance Bank in
Canada for the third time in the past
four years by Global Finance magazine,
which underscores our strength and
commitment to offering our clients
industry-leading products and services.
It’s an important fact that when margins
were paper thin and many other banks
were exiting trade finance, we stayed –
and actually boosted our global presence
and nurtured the correspondent banking
network, which now puts us in a very
strong position in the market. |
