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Banks large and small are finding trade finance services to be a useful tool for customer retention and loan book diversification — not to mention a line of business that looks attractive in its own right.
March 1 -
An increasing number of businesses are using trade finance products not just as a risk-mitigation tool as they wait for payment from foreign customers, but also as collateral to obtain more funding from banks.
March 1
In early 2010, the Obama Administration announced a concerted push to double the level of U.S. exports over five years, to $3.14 trillion, by enticing more U.S. companies of all sizes to expand their markets outside of the country.
Aided no doubt by the global economic recovery and rising commodity prices, the effort so far is on track. In September, U.S. exports of goods and services were at an all-time high-$180.4 billion, according to Commerce Department figures. Though they have retreated in the months since (to $179.4 billion in October and $177.8 billion in November), exports for the first 11 months of 2011 topped $1.92 trillion, 22 percent higher than for all of 2009.
At the center of the administration's push is the U.S. Export-Import Bank, which in its fiscal year ended Sept. 30 approved more than $32 billion in authorizations-a record for the bank. Its efforts supported $41.3 billion in exports by more than 3,600 U.S. companies, supporting an estimated 290,000 American jobs, according to Ex-Im Bank Chairman Fred Hochberg. "There's not a member of Congress, senator or governor today who is not wondering how they are going to help their constituents in this economy," Hochberg says. "Businesses can add jobs through exporting."
Key to this goal is getting more banks to offer trade finance services, he says. In 2011, 245 lenders did business with the Ex-Im Bank, but 90 percent of the transactions were conducted by only about a dozen lenders. Big banks were dominant-the top five lenders to small businesses were PNC, Wells Fargo, Silicon Valley Bank, JPMorgan Chase and Bank of America.
However, banks of all sizes are in the best position to entice their own customers to considering exporting, Hochberg says. And with so many would-be exporters in need of a financial partner, "a bank should think about doing this because their competitors might be doing it," he says.
PNC Bank's trade finance division relies almost exclusively on its Ex-Im Bank relationship, says Robert P. Mayer, senior vice president and manager of the trade finance group at Pittsburgh-based PNC. "Many times we will have a facility to a corporate client to finance their U.S. domestic sales, and they will want us to increase their facility to finance their export needs, and so we use Ex-Im Bank's program to do that," Mayer says. "It allows PNC to piggyback on a domestic relationship and add value to that relationship."
Under Ex-Im Bank's working capital guarantee program, the trade finance group often works in conjunction with PNC's asset-based lending group. PNC also uses Ex-Im Bank's buyers' credit program to lend to foreign entities that use the proceeds to purchase capital goods such as farm, transporation or construction equipment from U.S. manufacturers. "While not recession proof," Mayer says, "overall demand for this activity has remained strong since exports will tend to shift from economies which are slowing down to ones which are growing." Mayer says. "Financing can often make the difference in winning or losing a sale."
