Strong Trade Gives Us Banks Edge In Financing
Written by Marilyn Bowden on March 22, 2012
By Marilyn Bowden
While international trade is picking up, traditional sources of financing are pulling back, but experts say that creates opportunities for some US banks.
"Trade volumes have remained strong and are trending upwards for South Florida, indicating that trade financing will be more readily available in the future," said Mario E. Goderich, assistant director of the Miami-Dade County Sustainability, Planning and Economic Enhancement Department.
"The values of trade passing through Miami-Customs District 52 for the period 2009-2011 have been $79 billion, $95 billion, and $113 billion, respectively. Because of the high and growing volume of trade, the market demand by local businesses for trade financing solutions should also continue to grow, and banks and trade financing companies will try to meet the needs of their clients."
Such factors as the robust economies of several Latin American countries and recent free trade agreements with Panama and Colombia have boosted trade with Latin America. As a result, "We have seen more willingness from financial institutions to look at these transactions than in the past two or three years," said Emil Infante, a partner with the law firm Infante Zumpano Partners. "They are seeing creditworthiness in companies in South America as their economies have grown."
International trade has traditionally been financed by European banks, said John L. Murphy, of counsel at the Miami office of the law firm Foley & Lardner and a member of the firm’s Finance & Financial Institutions, Transactional & Securities and Latin America practice groups, but that source is drying up.
First, he said, due to financial crises in such countries as Greece and Portugal, European banks don’t have the liquidity they once had.
Second, "they all have a high cost of obtaining dollar funding," Mr. Murphy said, "and since most will want financing provided in dollars, it’s more expensive for them now than it was several years ago. They just don’t have the deposit base.
"So banks are all very hesitant in trusting each other to provide cheap money to each other."
French banks, formerly major players in global trade finance, said Carlos J. Abarca, a partner at Infante Zumpano, "are less willing to lend because of what is going on in their own backyard. That has produced a decrease in willingness among European banks in growing the trade finance area."
Another issue, he said, is that new regulations coming out of Basel III, the international regulatory framework for banks, are disadvantageous to banks.
"The regulatory requirements that are being phased in over the next few years mean that trade finance has a bigger regulatory cross," Mr. Murphy said, "so it’s not as profitable for the European banks right now."
That trend, however, is good for US banks, he said, "and probably even better for smaller US banks.
"It’s a good opportunity for them to look towards developing commercial products.
"There are a lot of sources of money in the nonbank sector that are holding on and waiting to see if they can develop products and sell them to users. If smaller banks here look into that area, I think they will be successful."
"Banks try to be creative and not necessarily use their own capital," Mr. Abarca said. "What we’ve seen locally is that they have tried to grow their US trade finance through the Export Finance Programs of the US Small Business Administration [SBA], which guarantee receivables from foreigners.
"In effect, they are exchanging foreign-receivable risk for SBA risk."