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Economic Turbulence Inspires Trade Finance Renaissance

Economic turbulence is increasing the demand for trade finance products, which is inspiring banks to shift away from legacy platforms with an increasing focus on environmental, social and governance (ESG). 

The growing demand for trade finance forms a core theme in the second annual report of Demica, covering key trends across all supply chain finance products.

In its 2023 Benchmark Report for Banks in Trade Finance, the UK-based fintech, which powers trade finance programmes for the world’s largest trade banks and corporations, surveyed 190 supply chain finance professionals across 40 countries on a variety of topics including the impact of global events, staffing changes, asset growth, product priorities, ESG and technology.

Key findings from the report

The report draws a strong correlation between economic turbulence and the demand for trade finance products. With this, 78 per cent of respondents reported growth in asset sizes across the market during 2022, with 55 per cent of trade finance professionals citing inflation as a key driver of this.

In the same light, 74 per cent expect this activity to continue into this year.

A second key finding from the report is that despite much discussion, banks are unconcerned with changes to disclosure rules in trade finance.

In this, 92 per cent of those working in payables teams don’t expect the new accounting disclosure rules to change the nature of the payables finance products they offer to their clients. Furthermore, just five per cent say that it is presenting a significant challenge when setting up payables transactions.

The report’s third main finding confirms that after years of extensive discussions, things are trending in a positive direction as banks are increasingly using ESG rating services in live trade finance transactions, with 23 per cent using ESG ratings in live transactions, compared with 15 per cent in 2022.

This is evidence of an increased commitment to sustainability in supply chain finance. This year, 54 per cent of respondents are looking to offer favourable rates in their programmes based on ESG scoring criteria.

The report’s findings conclude with the advent of a procurement super-cycle, meaning that although trade finance banks are still operating on outdated technology, most are now looking to replace legacy platforms within the next five years.

On this note,  45 per cent of respondents are using platforms more than 10 years old and 61 per cent are looking to replace their technology within the next five years.

Responding to market growth
trade finance
Matt Wreford, CEO, Demica

Reflecting on its latest findings, the company’s CEO, Matt Wreford, says that the release of the second annual benchmark report comes during “a period of particularly high growth at Demica and the market as a whole.”

“What is particularly interesting is to see such a large volume of last year’s report’s predictions have come to pass,” continues Wreford.

“With more responses from banks in more countries than we had in 2022, the findings this year are even more insightful and will, I believe, help market participants navigate the new environment of inflation, banking sector turmoil and economic uncertainty,” he concludes.

Author

  • Tyler is a fintech journalist with specific interests in online banking and emerging AI technologies. He began his career writing with a plethora of national and international publications.

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