Cash and Trade Mag-Issue 1

Enterprise resource planning:
systems integration is the key

Consolidating for the upturn
BMMI: The pursuit of excellence
Controlling nancial turbulence
n
e
w
View Point: Trade
Banking & Finance
Exclusive interview with Saudi
Hollandi Banks Zaki H. Jawad
Swift a communication
revolution
Trade nance
vital to the
solution?
P. 24
For Cash and Trade professionals in the Middle East Launch Issue
CASH AND TRADE LAUNCH ISSUE 2009 3
Contents
Trade nance has been caught in the crossre of the global
economic crisis, both as a symbol of its extensive reach and as a
vital piece of the solution.
In an exclusive interview for Cash & Trade Zaki M. Jawad, Saudi Hollandi
Banks Head of Transaction Banking Group explains why he believes
there is tremendous growth potential for trade business in the kingdom.
The Middle East has only recently begun to feel the impact of the
global downturn but the region is well placed to take advantage of
the upturn as it arrives
5 Letter from the editorial director
8 Regional roundup
12 Corporate banking in focus
18 Systems integration is key
21 Open Account Trade a Standard
Chartered solution
22 Attention on asset quality reaps rich rewards
24 The pursuit of excellence in dicult times
26 Trade banking and nance
32 Turning the tables on nancial turbulence
34 Financial talent means the future looks bright
36 Outsourcing for Corporate Banks
38 Corporate treasurers move centre stage:
how best to manage cash and leverage it?
40 SWIFT a communication revolution
24
20
32
Hani Al Maskati
Editorial Director & Publisher
Pat Lancaster
Editor
Carlo Nicolaou
Art Editor
Vivienne McKenzie
Commercial Director
Michael Messam
Production Manager
Contributors: Pamela Ann Smith;
Caroline Maginn; Maki Vekinis;
Alexander R. Malaket; Derek Ennis;
Robert Watsham
Cash Management Matters
:o: Falcon Tower
Diplomatic Area
vo nox ,o,,8
Manama
Kingdomof Bahrain
1ii: +,, : ,,, oo ,8
www.cashmanagementmatters.com
www.africasia.com
Cash and Trade is published on behalf
of CASHMANAGEMENT MATTERS
by IC Publications.
All correspondence and queries should
be addressed to
1ii: + :o, 8: ,: :o
v.mckenzie@africasia.com
IC Publications: All material is strictly copyright and all rights are reserved.
No part of this publication may be reproduced in whole or in part without
written permission of the copyright holder. Opinions expressed in Cash and
Trade are not necessarily those of IC Publications and IC Publications does not
accept responsibility for advertising content.
Welcome
Dear Reader,
Responding to huge demand, we are proud to launch
the regions frst home-grown publication to focus on
cash management and trade. During these turbulent
times, we believe an independent analysis of these core
business activities and market developments is crucial
to both national and multinational corporations as
well as the international banking and legal professions.
By interrogating developments in these sectors, a
more successful fnancial transfer industry within the
region can be fostered. In a clear and succinct manner,
Cash & Trade will present invaluable market intel-
ligence to inform and advise senior decision-makers
on how to enhance business emciencies.
Te development of the Gulf Cooperation Coun-
cils (GCC) common market is widely anticipated to
herald profound changes to commerce within the
region, and will signal adjustments that businesses
must respond and adapt to. We can learn much from
the precedents of the development of other regional
economic communities, most notably the European
Union (EU).
Te experience of the EU showed that, with the
increase in both the value and volume of trade and
new communication technologies, a rapid evolution
of sophisticated trading and settlement systems took
place. Tis evolution added a fresh layer of complexity
to the management of cash and trade fows for corpo-
rations, institutions and the banking sector serving
them. Tis complexity was further compounded by
the credit crisis that preceded the current economic
downturn.
Regional businesses are demanding more from
their banks. Meanwhile, banks are insisting on more
from their technology suppliers and correspondent
bank partners. Corporations and fnancial institu-
tions, in the interest of the emcient management of
cash, are insisting on new products and solutions that
will provide better and faster information on account
balances and movements, improve transaction speeds
and enhance liquidity through tools such as netting
and pooling.
Where local regulatory legislation permits, banks
are also increasingly being required by their corpo-
rate customers to provide NOSTRO and VOSTRO
accounts, i.e. accounts held in the currency and/or
territory of a foreign country that facilitates easier
cash management by avoiding the vagaries of the
forex market.
Corporations based in the GCC region cite trade
and fnance services as the issues they are least satis-
fed with. Specifcally, they complain of shortcomings
in the quality of the advice, products and services that
are available from fnancial institutions. Tey call for
a faster service when negotiating letters of credit and
other guarantee and collection products. Tey also
require more fexible fnance and credit facilities as
well as better risk mitigation solutions for both con-
ventional and Islamic trade fnance.
For their part, the regions Central Bank regulators
and associated entities are increasingly concerned that
the fnancial services sector as a whole evolves in a
way that ensures liquidity is available to support core
trade fows domestically and internationally. As much
as o of the worlds merchandise trade, valued at
between s:, and s: trillion a year, is funded by trade
fnance through letters of credit but there are grow-
ing worries (aired at recent G:o and WTO meetings)
that liquidity in these traditional, low-risk forms of
credit is drying up. Tis is having a disastrous efect
on importers and exporters, particularly those from
developing economies.
Te increasing shortage of credit will inevitably
have a negative infuence on trade fows generally,
which are widely acknowledged as the engine for
reversing the current economic slump.
Te GCCs banks and corporations are under pres-
sure from their overseas counterparts, suppliers and
customers (many of whom have been hit even harder
by the current global slowdown) for improved trade
and payment terms. Tis puts greater pressure on
GCC banks, corporations and regulators to ensure
solutions are available to deliver the crucial liquidity
that is required to stimulate an increase in domestic
and international trade.
We have already seen the beginning of the evolu-
tion of a new generation of trade and cash manage-
ment products and expect this to accelerate over the
short to medium term. Tis publication is designed
to be a dynamic forum to inform all the relevant
stakeholders of this evolution, so that they can make
informed choices and ensure the best possible return
on their investments. Accordingly we invite and wel-
come your input and support.
www.cashmanagementmatters.com
Letter from the editorial director
Hani Al Maskati has
over 23 years experience
in the Transaction
Banking Sector. He has
spearheaded several
businesses with the
express intent of placing
local and regional
fnancial institutions at
the forefront of delivering
innovative Cash and Trade
products, services and IT
solutions to customers,
through the Bahrain
based Cash Management
Matters (CMM).
20% discount
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CASH AND TRADE LAUNCH ISSUE 2009 9 8 CASH AND TRADE LAUNCH ISSUE 2009
News
SAUDI ARABIA
MoneyGram expands Middle
East presence with NCB ATM
remittance deal
National Commercial Bank (NCB), the
largest bank in the Middle East, is to of-
fer MoneyGram's international money
transfer service at :oo ATM locations
in Saudi Arabia.
Te agreement signifcantly expands
MoneyGram's presence in the Kingdom,
which is seen as a leading global
remittance destination.
Home to more than six million
expatriates, Saudi Arabia saw
remittances grow to more than s:,bn in
:ooo, according to the World Bank.
Safe and simple mioney transfers are
vital for expatriates who frequently need
to send money home to their families
who depend on it arriving swifly.
Anthony Ryan, president and
CEO of MoneyGram International,
comments: "Saudi Arabia is the second
largest send market in the world behind
the United States, and our alliance
with a premier fnancial institution
like National Commercial Bank
represents a signifcant opportunity for
MoneyGram's expansion plans in the
Middle East."
MoneyGram has been operating in
Saudi Arabia since :8 and manages its
services to the region from an omce in
Dubai.
Tese transfers at NCB will be sent over
NCB's Quickpay platform. Initially, only
send services will be available.
DUBAI
Nasdaq Dubai taps SunGard
for equity derivatives trading
SunGard has extended the capabilities
of its GMI system to facilitate
processing of equity derivatives traded
on Nasdaq Dubai, the Middle East's
international stock exchange. GMI is
a clearing and accounting solution for
exchange traded derivatives, futures
and options.
SunGard's GMI helps NASDAQ
Dubai customers and exchange
members to readily trade and process
business on the new exchange. GMI
has been customised to support futures,
futures options, stock futures, equity
options, Contracts for Diferences
(CFDs), foreign exchange and dividends
listed instruments in the Middle East. It
provides the automation frms require
to help trade and process transactions
from contract to settlement, providing
post-trade processing, margin
calculation and quick valuation of
derivative transactions for brokers and
their clients.
NASDAQ Dubai is the only United
Arab Emirates exchange that trades
equity derivatives. It launched the
market in November :oo8 by listing
futures on the FTSE NASDAQ Dubai
UAE :o index and on :o individual
stocks listed on NASDAQ Dubai, the
Dubai Financial Market and the Abu
Dhabi Securities Exchange. In April
:oo NASDAQ Dubai added an equity
options service.
BAHRAIN
National Bank of Bahrain H1
net prot marginally ahead
National Bank of Bahrain reported
net proft of BD:,.oom (so8.om)
for the o months through June ,o,
compared to BD:,.,,m(so8.o:m) for the
corresponding period last year.
Net interest income rose to BD:,.:m
(soo.8om) from BD::.,om (soo.,,m),
while 'other income' fell to BD:,.,:m
(s,,.,m) from BD:,.:m (s:.o:m)
principally due to a fall in income
from syndications and mutual fund
business on account of a slowdown
in market activities. Operating
expenses meanwhile increased to
BD::.om (s,,.,,m) from BD::.,,m
(s,,.,8m) due to 'expanding business
requirements'. No major credit
deterioration was noted and therefore
no impairment provision for loans was
made during the period.
Loans and advances as at June
,o were ,. at BD:.:, bn (s,.o,
bn). Customer deposits stood at
BD:.,bn (s,.8:bn), compared to
BD:.,,bn (s,.obn). Te annualised
return on average equity of :,.o
during H: :oo compared to :o., in
the half of :oo8.
Union National Bank, one of the
UAEs leading banks, has announced the
introduction of the interest in advance
deposit.
It enables account holders to receive
interest on their deposits in advance
as and when they place the deposit
with UNB, instead of at the time of
deposit maturity. Customers can book
an Interest in Advance Deposit for a
minimum amount of AED :oo,ooo.
Customers can choose a period from a
range of months to : months based
on their convenience. Commenting
on the launch of UNBs latest product
ofering, Mahmoud Halawa, Executive
Vice President & Head of Business
Groups said: Te Interest in Advance
Deposit Account has been introduced
to provide our customers with an
attractive value-addition and is in line
with our philosophy of being the bank
that cares. Te guaranteed return on
deposits at the time of placing their
deposit with us enables customers to
enjoy immediate liquidityTis latest
initiative underlines our commitment to
ofer innovative products and services in
a bid to help our client base accomplish
their fnancial goals ", he added. Te
launch of this latest product which is
primarily targeted at medium & High
Net Worth Individuals, is in line with
the UNB's multi dimensional approach
aimed at targeting all segments of the
UAE community via various socio-
economic initiatives.
UAE
Customers can enjoy
compliance with new
regulations outlined by UAE
Ministry of Labour
HSBC Bank Middle East Ltd
announced the omcial launch of the
new Payroll Card Service, which will
allow customers to process salary
payments electronically while giving
their employees the beneft of security
Regional roundup
Keeping you up-to-date with the latest
developments in the region and further afeld
1 2 3
4
1
2
4
3
Training
10 CASH AND TRADE LAUNCH ISSUE 2009
News
and the convenience of a debit card.
Te service is being provided in
partnership with C, Card, a company
specialising in prepaid card and payroll
services.
With this new service, companies
employing a large number of low wage
earners can ensure convenient and
timely payments of employee salaries.
Te MasterCard prepaid card can be
used at ATMs across the UAE and the
world. Card users can also swipe their
card at any enabled point of sale store
terminals to make purchases.
Paul Edgar, Head of Transaction
Banking, HSBC Bank Middle East,
says Our new payroll product
further enhances our extensive menu
of business services. Existing wage
payment methods have been fraught
with inemciencies as well as posed
security issues. With our new and
innovative solution, customers can be
assured of making prompt payments in
an expedient manner, electronically.
Te Ministry of Labour is in the
process of implementing the Wage
Protection System in order to protect
workers dues. We believe that the use
of a robust electronic payroll system
will have an essential role to play in
delivering this objective.In order to
help with usage and overcome frst
time card user dimculties, HSBC
will work with its partners to provide
training support. User enquiries will
be attended to through a dedicated
telephone line available through the
C, support lines in many languages
including English and Hindi. Mobile
ATM vans may be made available
to visit large customer sites, if this
is requested as a part of the service
proposition.Te payroll card is a PIN
protected card and will have the
users name and passport/labour card
number imprinted on the card. Te
user can access the funds anywhere
using any ATM connected to the
UAEs ATM network. With the new
Payroll Card Service, HSBCHSBC has
revolutionised the banking experience
of low income earners enabling us
to provide our employees with a
more emcient and comfortable work
environment.
WORLD
IMF update
In an update to its April Economic
Outlook, the International Monetary
Fund (IMF) has lowered its Middle
East growth forecast for :oo by half
a percentage point, as oil exporters
draw on fnancial reserves to prop
up domestic demand. Te IMF has
said that Middle East economies will
expand by :, compared with ,.: in
:oo8, while the growth forecast for :o:o
was raised o.: percentage point to ,.,.
REGIONAL
EastNets to oer
SmartStreams TLM
OnDemand across the Middle
East, North Africa and US
SmartStream Technologies, the
fnancial Transaction Lifecycle
Management specialist, today
announced a new partnership with
EastNets, a leading provider of global
compliance and payments solutions
and services, and one of the worlds
largest SWIFT Service Bureaus.
EastNets, which has more
than :,ooo customers and over :,o
fnancial institutions on its Service
Bureau, will act as a distributor
for TLM OnDemand, ofering
SmartStreams SaaS solution to
its clients in the Middle East and
US. Te reconciliations service is a
natural extension to the frms already
established Service Bureau and ofers
EastNets clients additional strategies
to control risk and cost in their
business.
SmartStreams TLM OnDemand
service was designed to provide
small to medium-sized frms with
afordable and rapid access to the
same technology that is already
deployed at many of the worlds
leading institutions. In addition
to delivering SmartStreams SaaS
reconciliation ofering, EastNets will
also distribute SmartStreams suite
of TLM and Corona solutions.Tis
is the frst distribution agreement
for TLM OnDemand and will enable
EastNets to ofer rapid on-boarding
and transaction based pricing for
the market-leading reconciliations
solutions. EastNets and SmartStream
will be holding a series of workshops
over the next few months to explain
to frms across the Middle East
region and the US how they can take
advantage of the partnership.
REGIONAL
Renaissance Capital
implements Actimize AML
and market abuse platforms
Actimize, a leading provider of
transactional risk management
sofware for the fnancial services
industry and a NICE Systems company
(NASDAQ:NICE), today announced
that Renaissance Capital, a major
emerging markets investment bank,
has fully implemented its Anti-Money
Laundering (AML) and market abuse
solutions to comply with strict FSA and
Russian regulations and to automate,
streamline and drive down the costs of
its enterprise compliance enforcement,
gaining lower total-cost-of-ownership
(TCO).
Renaissance Capital, founded in
:, as a Moscow-based investment
bank, delivers innovative fnancial and
investment solutions to government,
corporate and institutional clients in
high-opportunity emerging markets
around the world. It has expanded
signifcantly to become the pre-
eminent specialist in emerging markets,
with a presence in Sub-Saharan Africa,
the Middle East, Russia and the CIS
(Commonwealth of Independent
States).
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www.meabahrain.com
12 CASH AND TRADE LAUNCH ISSUE 2009 CASH AND TRADE LAUNCH ISSUE 2009 13
Analysis
A survey of banks in
the region reveals the
growing importance of
the corporate segment to
the fortunes of the banking
sector as the search widens
for new areas of proft.
BY CAROLINE MAGINN
CMM TRADE PARTNER
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Corporate
banking in focus
How important is the
corporate bank segment as a
contributor to bank liquidity?
As demonstrated by the tables, right, the
absolute level of corporate liabilities grew
uniformly across the sampled banks,
clearly illustrating the importance of this
segment as a contributor to bank liquidity.
Consequently corporate liabilities will
attract increasing attention from banks
senior management during the current
economic turmoil. Corporate liabilities
as a percentage of total liabilities shrank
for all banks in the sample, except
SAMBA, Arab Bank and Saudi Hollandi,
and contributed to a third or more of
total liabilities for all banks except BBK,
Al Rajhi and Al Jazira. SAMBA leads
the banks sampled in terms of total
corporate liabilities and their growth,
followed by Riyadh Bank and Arab
Bank. Attracting stable or growing
levels of corporate liabilities is highly
dependent on strong cash management
and money market propositions. Tis
should create a compelling imperative for
senior management to invest in building
capabilities and product propositions in
these areas.
How important to the regions
banks is the corporate
banking segment?
In both the absolute and percentage
levels of corporate assets, the corporate
segment has increased amongst the
banks sampled. Tis refects the
growing focus on the corporate segment
in terms of overall bank business, most
markedly in the case of Arab Bank and
Saudi banks as a whole, confrming a
growing consensus among the regions
corporate bankers that investment had
been unduly focused on the retail and
brokerage segments. Te importance of
a presence in Saudi Arabia for any bank
with ambitions to grow its regional
corporate business is underscored by
the relative size of the market there
compared with other GCC countries.
With the exception of Saudi Fransi and
Saudi Hollandi, corporate assets as a
percentage of total assets increased
across the banks sampled. Interestingly,
both these banks also grew the absolute
level of corporate assets. (Te size and
percentage contribution of corporate
assets with Arab Banks total asset base
rose by roughly ,o in each case.) Source: CMManalysis of individual bank annual reports and notes
How important is trade
in the context of total
corporate assets?
Trade contra items represent a
signifcant percentage of total
corporate assets in the majority of
cases. Our conclusion is that trade
business should be a central aim
for any bank building its corporate
business segment. Te year-on-year
trend was positive in terms of the
growth of the trade contribution to the
corporate business for all banks except
Al Jazira, SABB and Arab Bank.
Cash & Trade forecasts that the
increasing importance of trade fnance
as a percentage of the corporate
banking segment will continue.
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0
0
7
A
rab
B
an
k ?
0
0
G
P
iyad
h
B
an
k ?
0
0
7
P
iyad
h
B
an
k ?
0
0
G
S
A
H
B
A
?
0
0
7
S
A
H
B
A
?
0
0
G
S
au
d
i Fran
si ?
0
0
7
S
au
d
i Fran
si ?
0
0
G
N
aL'l B
an
k o
f B
ah
rain
?
0
0
7
N
aL'l B
an
k o
f B
ah
rain
?
0
0
G
h
o
u
sin
g B
an
k fo
r Trad
e &
Fin
an
ce ?
0
0
7
B
an
k H
u
scaL ?
0
0
7
B
an
k H
u
scaL ?
0
0
G
Source: CMManalysis of individual bank annual reports and notes
How important is the
corporate segment to
banks net protability?
Te data in the tables, right, indicate
that corporate net proft grew year-on-
year for all banks in the sample. Except
for Al Jazira and Al Rajhi Bank, the
percentage of this corporate proft as a
contribution to total profts exceeded
,o. In the case of Arab Bank, Riyadh
Bank and SABB, corporate profts
contributed to more than half the banks
total profts. Tis again emphasises
the importance of focussing on the
corporate segment, in particular cash
management and trade.
Cash & Trade will publish updated
information for :oo8 when it becomes
available, but we confdentally
anticipate that the fall in brokerage
and investment income will reveal that
the corporate segment is becoming
an increasingly important element of
banking operations.
0
?0
40
G0
80
I00
I?0
Al Khaliji 2007 Al Khaliji 2006 Al Jazira 2007 Al Jazira 2006 Al Rahji 2007 Al Rahji 2006 SABB 2007 SABB 2006 Saudi Hollandi 2007 Saudi Hollandi 2006 BBK 2007 BBK 2006 Ahli United Bank 2007 Ahli United Bank 2006 Arab Banking Corporation 2007 Arab Banking Corporation 2006 Arab Bank 2007 Arab Bank 2006 Riyadh Bank 2007 Riyadh Bank 2006 SAMBA 2007 SAMBA 2006 Commercial Bank of Kuwait 2007 Commercial Bank of Kuwait 2006 National Bank of Kuwait 2007 National Bank of Kuwait 2006 National Commercial Bank 2007 National Commercial Bank 2006 Saudi Franzi 2007 Saudi Franzi 2006 Qatar National Bank 2007 Qatar National Bank 2006 Nat'l Bank of Bahrain 2007 Nat'l Bank of Bahrain 2006 Nat'l Bank of Abu Dhabi 2007 Nat'l Bank of Abu Dhabi 2006 Housing Bank for Trade & Finance 2007 Housing Bank for Trade & Finance 2006 Gulf Bank Kuwait 2007 Gulf Bank Kuwait 2006 Gulf Int'l Bank 2007 Gulf Int'l Bank 2006 Dubai Islamic Bank 2007 Dubai Islamic Bank 2006 Commercial Bank of Qatar 2007 Commercial Bank of Qatar 2006 Bank Muscat 2007 Bank Muscat 2006 Emirates Bank / NBD 2007 Emirates Bank / NBD 2006
A
l K
h
aliji ?
0
0
7
A
l K
h
aliji ?
0
0
G
A
l Jazira ?
0
0
7
A
l Jazira ?
0
0
G
A
l P
ah
ji ?
0
0
7
A
l P
ah
ji ?
0
0
G
S
A
B
B
?
0
0
7
S
A
B
B
?
0
0
G
h
S
B
C
H
E
?
0
0
7
h
S
B
C
H
E
?
0
0
G
S
au
d
i h
o
llan
d
i ?
0
0
7
S
au
d
i h
o
llan
d
i ?
0
0
G
B
B
K
?
0
0
7
B
B
K
?
0
0
G
A
h
li u
n
iLed
B
an
k ?
0
0
7
A
h
li u
n
iLed
B
an
k ?
0
0
G
A
rab
B
an
kin
g C
o
r
o
raLio
n
?
0
0
7
A
rab
B
an
kin
g C
o
r
o
raLio
n
?
0
0
G
A
rab
B
an
k ?
0
0
7
A
rab
B
an
k ?
0
0
G
P
iyad
h
B
an
k ?
0
0
7
P
iyad
h
B
an
k ?
0
0
G
S
A
H
B
A
?
0
0
7
S
A
H
B
A
?
0
0
G
C
o
m
m
ercial B
an
k o
f K
u
w
aiL ?
0
0
7
C
o
m
m
ercial B
an
k o
f K
u
w
aiL ?
0
0
G
N
aLio
n
al B
an
k o
f K
u
w
aiL ?
0
0
7
N
aLio
n
al B
an
k o
f K
u
w
aiL ?
0
0
G
N
aLio
n
al C
o
m
m
ercial B
an
k ?
0
0
7
N
aLio
n
al C
o
m
m
ercial B
an
k ?
0
0
G
S
au
d
i Fran
si ?
0
0
7
S
au
d
i Fran
si ?
0
0
G
aLar N
aLio
n
al B
an
k ?
0
0
7
aLar N
aLio
n
al B
an
k ?
0
0
G
N
aL'l B
an
k o
f B
ah
rain
?
0
0
7
N
aL'l B
an
k o
f B
ah
rain
?
0
0
G
N
aL'l B
an
k o
f A
b
u
0
h
ab
i ?
0
0
7
N
aL'l B
an
k o
f A
b
u
0
h
ab
i ?
0
0
G
h
o
u
sin
g B
an
k fo
r Trad
e &
Fin
an
ce ?
0
0
7
h
o
u
sin
g B
an
k fo
r Trad
e &
Fin
an
ce ?
0
0
G
C
u
lf B
an
k K
u
w
aiL ?
0
0
7
C
u
lf B
an
k K
u
w
aiL ?
0
0
G
C
u
lf ln
L'l B
an
k ?
0
0
7
C
u
lf ln
L'l B
an
k ?
0
0
G
0
u
b
ai lslam
ic B
an
k ?
0
0
7
0
u
b
ai lslam
ic B
an
k ?
0
0
G
C
o
m
m
ercial B
an
k o
f
aLar ?
0
0
7
C
o
m
m
ercial B
an
k o
f
aLar ?
0
0
G
B
an
k H
u
scaL ?
0
0
7
B
an
k H
u
scaL ?
0
0
G
E
m
iraLe
s B
an
k / N
B
0
?
0
0
7
E
m
iraLe
s B
an
k / N
B
0
?
0
0
G
Ca(|ta| /dequac, |at|o Cor(orate |et |ro|t: |n SCCC:
Cor(orate |et |ro|t: a: ' Tota| |et |ro|t:
0
I00,000
?00,000
800,000
400,000
500,000
G00,000
0
I0
?0
80
40
50
G0
70
80
A
l Jazira ?
0
0
7
A
l Jazira ?
0
0
G
A
l P
ah
ji ?
0
0
7
A
l P
ah
ji ?
0
0
G
S
A
B
B
?
0
0
7
S
A
B
B
?
0
0
G
S
au
d
i h
o
llan
d
i ?
0
0
7
S
au
d
i h
o
llan
d
i ?
0
0
G
B
B
K
?
0
0
7
B
B
K
?
0
0
G
A
rab
B
an
k ?
0
0
7
A
rab
B
an
k ?
0
0
G
P
iyad
h
B
an
k ?
0
0
7
P
iyad
h
B
an
k ?
0
0
G
S
A
H
B
A
?
0
0
7
S
A
H
B
A
?
0
0
G
S
au
d
i Fran
si ?
0
0
7
S
au
d
i Fran
si ?
0
0
G
N
aL'l B
an
k o
f B
ah
rain
?
0
0
7
N
aL'l B
an
k o
f B
ah
rain
?
0
0
G
h
o
u
sin
g B
an
k fo
r Trad
e &
Fin
an
ce ?
0
0
7
h
o
u
sin
g B
an
k fo
r Trad
e &
Fin
an
ce ?
0
0
G
B
an
k H
u
scaL ?
0
0
7
B
an
k H
u
scaL ?
0
0
G
What is the corporate
segments dependency
on income from trade?
Te signifcance of trade income to total
corporate income is hugely variable
across the sample ranging from in
excess of ,o for Saudi Hollandi to
between :o and :o for other banks in
the sample as illustrated right.
In light of the current global economic
slowdown, what is the inherent credit
quality of the regions banks?
Broadly speaking, there is stability
in the regions banking sector compared
with the situation globally and this
should continue to enjoy the confdence
of the international banks, corporations
and retail customers, representing
a safe haven for their funds and
providing the liquidity to support
trade credit business and sound cash
management operations. Te table,
right, illustrates the position as of
Analysis
What are the growth
trends of trade nance?
Te level of trade fnance grew for all
banks in the sample year, making it
a win-win product for all banks. In
particular, Emirates and Saudi Al Fransi
virtually doubled their trade related
contingents and liabilities. Guarantees
represent the dominant product for all
banks in the sample, followed by letters
of credit and acceptances. Arab Bank
and HSBC Middle East show the highest
portfolio concentrations on guarantees,
which are more capital intensive than
letters of credit.
Te growth in trade fnance, year-on-
year, is highest for guarantees (,:)
followed by letters of credit (,) and
acceptances (,). Te overall growth
across the product line as a whole
is impressive at , and contrasts
Cor(orate |et |ro|t: |n USSCCC:
0
I0
?0
80
40
50
G0
LeLLers of CrediL (includes
AcceLances for Lhose Banks noL
reorLing searaLely)
AcceLances CuaranLees ToLal Trade 0ffBalance SheeL
iLems and on Balance SheeL
(where known)
Trade |ee: and Comm|::|on: a: ' o Tota| Cor(orate |ncome
0
I0
?0
80
40
50
G0
A
l Jazira ?
0
0
7
A
l Jazira ?
0
0
G
S
A
B
B
?
0
0
7
S
A
B
B
?
0
0
G
S
au
d
i h
o
llan
d
i ?
0
0
7
S
au
d
i h
o
llan
d
i ?
0
0
G
S
A
H
B
A
?
0
0
7
S
A
H
B
A
?
0
0
G
S
au
d
i Fran
si ?
0
0
7
S
au
d
i Fran
si ?
0
0
G
March :oo for their short and long
term ratings as determined by Moodys,
the respected external credit assessment
institution.
However, it is important for customers
to actively monitor the situation and
collect local intelligence as external
credit assessment institutions are not
infallible.
However while a stable outlook applies
to most banks, the outlooks for Dubai
Islamic Bank and GIB are negative.
favourably with trends in other product
lines that have actually seen declines.
Trade fnance looks set to remain an
attractive area for investment.
Analysis
n:x :mi 1v:ui oii-n:i:ci
suii1 i1ims
n:x :mi 1v:ui oii-n:i:ci
suii1 i1ims
cu:ci ioo,
vs. iooo
Nat' l Bank of Abu Dhabi iooo 1,o,,oi, 1 Nat' l Bank of Abu Dhabi ioo, 1o,io,,,1 i,
Arab Bank iooo 1o,ooo,oo i Emirates Bank / NBD ioo, 1,,,,,oo8 1i,
HSBC ME iooo ,,i,1, Arab Bank ioo, 1i,,,,oo i
Riyadh Bank iooo o,,i,oo Saudi Fransi ioo, 1i,1o,8oo 88
SAMBA iooo o,8o,,8, , HSBC ME ioo, 1o,,ii,,io ,
National Commercial Bank iooo o,o1,1, o Riyadh Bank ioo, 1o,oi,,1,,
Saudi Fransi iooo o,i,8,1 , SAMBA ioo, ,o,1,iio 1
Emirates Bank / NBD iooo o,o,,11 8 National Commercial Bank ioo, 8,,1,8i1 i8
National Bank of Kuwait iooo ,,o,8,8i National Bank of Kuwait ioo, ,,o,,
SABB iooo ,o1,io 1o SABB ioo, o,,,,io i
Arab Banking Corporation iooo ,,,ooo 11 Gulf Bank Kuwait ioo, o,o,,o o
Gulf Bank Kuwait iooo ,,o,o8 1i Commercial Bank of Kuwait ioo, o,18,1i oi
Commercial Bank of Kuwait iooo ,81o,1o, 1 Commercial Bank of Qatar ioo, ,,,,oo, ,o
Saudi Hollandi iooo ,,,,,,, 1 Qatar National Bank ioo, ,,io,88 ,
Dubai Islamic Bank iooo ,1,,ooi 1, Arab Banking Corporation ioo, ,,io,ooo 1,
Commercial Bank of Qatar iooo ,1o,, 1o Dubai Islamic Bank ioo, ,oi,1o 8
Qatar National Bank iooo ,o,1o 1, Saudi Hollandi ioo, ,,o,, o
Bank Muscat iooo 1,,o,o,1 18 Al Rahji ioo, ,1,o,1o 11
Al Rahji iooo 1,8,oo 1 Bank Muscat ioo, i,o8,,o ,1
Ahli United Bank iooo 1,i81,8oo io Ahli United Bank ioo, 1,,,, ii
Housing Bank for Trade & Finance iooo 8,o,, i1 Housing Bank for Trade & Finance ioo, 1,,,, i
BBK iooo ,o1,8o ii BBK ioo, 1,1o,18 ,
Al Jazira iooo ,,,,,i i Al Jazira ioo, ,o1,i, 1
Nat' l Bank of Bahrain iooo 1,o,8o i Nat' l Bank of Bahrain ioo, i,o,,
1o1:i 1o,,,o,i,i 1o1:i 1,o,o1,,,8o 8
CMM League Table of sample Banks Capital Commitment to Trade
CMM League Table of sample Banks Trade Commissions
B:x N:mi Tv:ui Fiis
Commissios
B:x N:mi Tv:ui Fiis
Commissios (wuivi
xow)
Cu:ci ioo, vs. iooo
Nat' l Bank of Abu Dhabi iooo ,oo1 1 Emirates Bank / NBD ioo, ,,,81 ,,
Emirates Bank / NBD iooo 8,i i SABB ioo, ,,,, i
SAMBA iooo o,oi Nat' l Bank of Abu Dhabi ioo, ,o,,1o 1o
SABB iooo ,,o SAMBA ioo, ,i o
Saudi Fransi iooo i,8 , Saudi Fransi ioo, o,,1
Saudi Hollandi iooo i,1 o Saudi Hollandi ioo, 1,io
Gulf Int' l Bank iooo 1,,,oo , Gulf Int' l Bank ioo, io,8oo i
Al Jazira iooo ,ooi 8 Al Jazira ioo, ,1o 1
Total i8o,18o Total i,ii ii
B:x N:mi CoU1vv OU1ioox LT Divosi1s Fi:ci:i
S1vic1u
LT Siiov Din1. SUnovu IssUiv
R:1ic
Suov1 Tivm
BBK Bahrain STA (m) Ai C- Ai A - P-1
Gulf Int' l Bank Bahrain RUR A D+ - Baa1 - P-i
Nat' l Bank of Bahrain Bahrain STA (m) Ai C- - - - P-1
Housing Bank for Trade & Finance Jordan STA Ba C- - - - NP
Commercial Bank of Kuwait Kuwait RUR Aa C- - - - P-1
Gulf Bank Kuwait Kuwait RUR A1 C- - - - P-1
National Bank of Kuwait Kuwait RUR Aai B- - - - P-1
Bank Muscat Oman STA Ai C- A1 - - P-1
Al Khaliji Qatar
Commercial Bank of Qatar Qatar STA Ai C- A1 Ai - P-1
Qatar National Bank Qatar STA Aa C- - - - P-1
Al Jazira Saudi STA A D+ - - - P-i
Al Rahji Saudi STA A1 C- - - - P-1
National Commercial Bank Saudi STA A1 C- - - - P-1
Riyadh Bank Saudi STA A1 C- - - - P-1
SABB Saudi STA (m) A1 C+ NR - - P-1
SAMBA Saudi STA (m) A1 C+ - - - P-1
Saudi Fransi Saudi STA (m) A1 C+ - - - P-1
Saudi Hollandi Saudi STA A1 C- - - - P-1
Dubai Islamic Bank UAE NEG (m) - D+ - - - P-1
Emirates Bank / NBD UAE STA A1 C- A1 Ai P-1
Nat' l Bank of Abu Dhabi UAE STA Aa C Aa - - P-1
Ahli United Bank Bahrain
Arab Bank Jordan
Arab Banking Corporation Bahrain NEG (m) A D+ - - - P-1
HSBC ME UAE STA Aai C+ Aai Aa - P-1
Moodys Banks and Country Ratings
Have the regions banks
the capital adequacy and
scope to invest further in
their core businesses?
Te data indicates that the regions
banks are generally well capitalised
with ratios comfortably in excess of
those required by Basel II regulations.
With the exception of Bank Muscat,
Gulf International Bank, Ahli
United and BBK, all the banks in the
sample improved their use of capital,
contributing to improved returns for
shareholders.
Not withstanding this trend, capital
adequacy among banks in the region
remains robust and prudent within the
guidelines of the individual Central
Banks that have successfully balanced
the interests of shareholders and
depositors to maintain systemic liquidity
and investor confdence. Tis means that
banks have the scope to invest further
in their core businesses, ideally those
characterised as low both in risk and the
volatility of their earnings, with a focus
on fees and commissions growth.
Te cash management and trade segment
meets all of these criteria and given the
growth in these product income streams
and their contributions to the overall
balance sheet, and despite the current
economic turmoil, the cash management
and trade segment warrants the attention
of senior management in setting or
revising future business strategies
in light of the continuing global
uncertainties.
Cash & Trade look forward to the release
of the :oo,-8 comparative analysis once
a meaningful range of annual reports are
made available by the regions banks.
Cor(orate |et |ro|t:
0
I0
?0
80
40
50
G0
LeLLers of CrediL (includes
AcceLances for Lhose Banks noL
reorLing searaLely)
AcceLances CuaranLees ToLal Trade 0ffBalance SheeL
iLems and on Balance SheeL
(where known)
0
5,000,000
I0,000,000
I5,000,000
?0,000,000
Al Khaliji ?007 Al Khaliji ?00G Al Jazira ?007 Al Jazira ?00G Al Pahji ?007 Al Pahji ?00G SABB ?007 SABB ?00G hSBC HE ?007 hSBC HE ?00G Saudi hollandi ?007 Saudi hollandi ?00G BBK ?007 BBK ?00G Ahli uniLed Bank ?007 Ahli uniLed Bank ?00G Arab Banking CororaLion ?007 Arab Banking CororaLion ?00G Arab Bank ?007 Arab Bank ?00G Piyadh Bank ?007 Piyadh Bank ?00G SAHBA ?007 SAHBA ?00G Commercial Bank of KuwaiL ?007 Commercial Bank of KuwaiL ?00G NaLional Bank of KuwaiL ?007 NaLional Bank of KuwaiL ?00G NaLional Commercial Bank ?007 NaLional Commercial Bank ?00G Saudi Franzi ?007 Saudi Franzi ?00G aLar NaLional Bank ?007 aLar NaLional Bank ?00G NaL'l Bank of Bahrain ?007 NaL'l Bank of Bahrain ?00G NaL'l Bank of Abu 0habi ?007 NaL'l Bank of Abu 0habi ?00G housing Bank for Trade & Finance ?007 housing Bank for Trade & Finance ?00G Culf Bank KuwaiL ?007 Culf Bank KuwaiL ?00G Culf lnL'l Bank ?007 Culf lnL'l Bank ?00G 0ubai lslamic Bank ?007 0ubai lslamic Bank ?00G Commercial Bank of aLar ?007 Commercial Bank of aLar ?00G Bank HuscaL ?007 Bank HuscaL ?00G EmiraLes Bank / NB0 ?007 EmiraLes Bank / NB0 ?00G
A
l K
h
aliji ?
0
0
7
A
l K
h
aliji ?
0
0
G
A
l Jazira ?
0
0
7
A
l Jazira ?
0
0
G
A
l P
ah
ji ?
0
0
7
A
l P
ah
ji ?
0
0
G
S
A
B
B
?
0
0
7
S
A
B
B
?
0
0
G
h
S
B
C
H
E
?
0
0
7
h
S
B
C
H
E
?
0
0
G
S
au
d
i h
o
llan
d
i ?
0
0
7
S
au
d
i h
o
llan
d
i ?
0
0
G
B
B
K
?
0
0
7
B
B
K
?
0
0
G
A
h
li u
n
iLed
B
an
k ?
0
0
7
A
h
li u
n
iLed
B
an
k ?
0
0
G
A
rab
B
an
kin
g C
o
r
o
raLio
n
?
0
0
7
A
rab
B
an
kin
g C
o
r
o
raLio
n
?
0
0
G
A
rab
B
an
k ?
0
0
7
A
rab
B
an
k ?
0
0
G
P
iyad
h
B
an
k ?
0
0
7
P
iyad
h
B
an
k ?
0
0
G
S
A
H
B
A
?
0
0
7
S
A
H
B
A
?
0
0
G
C
o
m
m
ercial B
an
k o
f K
u
w
aiL ?
0
0
7
C
o
m
m
ercial B
an
k o
f K
u
w
aiL ?
0
0
G
LeLLers of CrediL (includes AcceLances for Lhose Banks noL reorLing searaLley)
AcceLances
CuaranLees
N
aLio
n
al B
an
k o
f K
u
w
aiL ?
0
0
7
N
aLio
n
al B
an
k o
f K
u
w
aiL ?
0
0
G
N
aLio
n
al C
o
m
m
ercial B
an
k ?
0
0
7
N
aLio
n
al C
o
m
m
ercial B
an
k ?
0
0
G
S
au
d
i Fran
si ?
0
0
7
S
au
d
i Fran
si ?
0
0
G
aLar N
aLio
n
al B
an
k ?
0
0
7
aLar N
aLio
n
al B
an
k ?
0
0
G
N
aL'l B
an
k o
f B
ah
rain
?
0
0
7
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Enterprise Resource Planning
Te integration model between banks and their corporate
customers is an ever expanding process
BY MAKI VEKINIS CASH MANAGMENT MATTERS (CMM) MANAGING PARTNER
Systems integration is key
T
he rise of enterprise resource plan-
ning systems (ERPs) in the GCC, and
in Saudi Arabian markets in particu-
lar, are well recorded. ERPs have proved to
be one of the key components in efective
business management for corporations.
Initially deployed to reduce complexity
and introduce emciencies to very large
companies with multiple, sophisticated
operations, over time these systems found
applications in wider markets. As a di-
rect result of the evolving nature of these
ERPs they have since expanded applica-
tions and services to reach a much larger
segment of corporate configurations.
In tandem with the switch to ERP sys-
tems by GCC corporations, Gulf states
have been striving to apply the same
principles of information and process
discipline to their banking sector.
Te current state of methodologies and
applicable processes corporations can em-
ploy to integrate with their bankers, and
whether these are single or multiple rela-
tionships, is the central question. Firstly,
lets assess a typical set of requirements
from a corporate viewpoint.
ERP systems have a base functionality
and a set of modules designed to support
integral company functions. In banking,
transactions are generated from various
modules (payroll from a human resources
department, vendor payments from the
accounts omce, etc.) which are then col-
lated and prepared for submission to the
bank from a common area. At the same
time, ERPs provide reconciliation facili-
ties. Any payment requested will ultimate-
ly be reconciled and reported in real time.
An important aspect of ERP imple-
mentation is the rationalisation of bank-
ing relationships. It has become a catalyst
for a change from multiple collection and
disbursement banks to single entities, al-
lowing for the concentration of cash at the
parent bank level as well as multiple client
companies to use the same bank accounts,
reducing costs and manual processing.
ERP is the driver behind an environment
of well practised controls and further
innovation that thereby heralded an era
where data integration, G/L automation,
funding and sweeping real time as well
as month-end error free processing, en-
hances the reputation of the individual
institution.
Yet the deceptive simplicity of these
requirements hides a complicated reality,
creating problems that have driven banks
to devise elaborate platforms for straight-
through processing, ofen for just a single
user (i.e. a single bank). Te complication
arises from the actual transmission of
data mechanism and the condition of the
information that needs to be exchanged.
Communication between a bank and
a corporations ERPs requires coordi-
nation on multiple levels. It demands
implementing a common data format for
transactions, enabling them to be identi-
fed and ultimately processed; agreement
on the communication methodology to
allow data to be transmitted and received;
agreement on a secure, authenticated
communications platform so data is hid-
den and protected; and agreement on
common reporting, rejections and re-
pair transactions platforms. From each
of these considerations, further com-
plications can arise, simply due to the
variety of options embedded in each. For
example, the format of the information
can be SWIFT based, EDI, or message
based with a treasury workstation system.
Te communication of the data itself can
be bulked and transmitted in batch, or
transmitted following preparation and
approval. Security and confdentiality
are achieved through digital certifcate
authentication or public key.
Other mechanisms for generating
payment requests in various formats
can also be present. For example, divi-
dend payments, initial public oferings,
rights issues and other corporate actions
require an ability to process and authen-
ticate large volumes of information. To
achieve this requires reliable integration
between the systems of the corporations
and their bankers being widely available,
i.e. the ERP providers (such as SAP, Ora-
cle, J.D. Edwards) and transfer (SWIFT,
in-country clearings). Corporations and
bankers must invest in creating simple
integration tools that can be used to
It is important to note the dierent components of each operating
environment and the challenges facing the teamtasked with complete
integration. For example, in a relatively simple task, oered by most
banks with an emphasis on corporate business, total integration
ensures that output fromthe ERP system, suitably formatted to
the SWIFT standard, can be securely transmitted to the bank
environment for payments to be executed and statements either
made available for collection or transmitted immediately back to the
corporate servers.
Corporate clients can utilise other systems to generate trade requests,
treasury settlements or securities trading.
The obvious questions, such as how would these requests be
transmitted to their preferred bank provider for processing?, how is the
associated information returned fromthe bank to be managed?, have no
comprehensive response.
There have been numerous attempts to produce a unied solution
that can cater for numerous corporate-based systems and multiple
bank processing platforms but a unied solution remains an
elusive goal. It is dicult to qualify the business case because of
its complexity and heavy service and support requirements. Until a
powerful and fully parametric solution is created, in both integration
as well as the connectivity components, separate integrators will
service the separate business components
and functions.
Corporations and bankers
must invest in creating
simple integration
tools that can be used
to achieve the desired
level of connectivity
achieve the desired level of connectivity.
SAP initially deployed a business connec-
tor capability of facilitating integration
with external platforms. Recently the SAP
NetWeaver, a far more advanced capabili-
ty, was introduced to connect and securely
transport data between the SAP installa-
tion and a selected bank. Correspondingly,
Oracle developed the Financial Gateway
to ofer, as described in the companys
own June :oo, white paper, a centralised
framework for payment processing and
electronic banking. It can be deployed to
connect a corporations ERP system to all
of their banks cash and payment systems.
Financial Gateway enables the corpora-
tion to manage all of its payments from a
single platform, and helps with the prepa-
ration, formatting, validation, approval
and release of clean payment instructions
to the bank or external payment system.
It is not only ERP providers that have
invested in these tools; various banks
have announced they will provide the
corresponding functionality to enable
ERP systems to seamlessly connect to
transmit and receive transactions, report
information, reject and repair transac-
tions. Notably HSBC is ofering a corpo-
rate solution powered by SAP NetWeaver.
According to HSBCs September :oo8
announcement: Te new bank-client
integration solution will enable corpo-
rate clients to link into HSBCs world-
wide banking network via a single entry
point, simplifying communications for
the banks corporate services such as
account payables, account receivables
and reconciliations. HSBCs customers
will gain easier access to their banking
information.
Since November :oo8, Wells Fargo has
ofered corporate customers the Wells
Fargo Adaptor that it claims automates
payables, receivables, cash management,
and reconciliation activities, with either
Oracle E-Business Suite or JD Edwards
Enterprise One fnancial applications.
Finally, to add further credibility to in-
tegration as an important direction, the
SWIFT organisation announced the SAP
Integration Package for SWIFT with the
directive Manage Your Bank Relation-
ships More Efectively; SAP Integration
Package for SWIFT gives you direct ac-
cess to SWIFTNet, the fnancial mes-
saging network built and maintained
by the Society for Worldwide Interbank
Financial Telecommunication (SWIFT).
It also includes out-of-the-box message
and process mappings that seamlessly
integrate the SAP ERP Financials solution
with the SWIFT infrastructure. You have
the ability to centralise communications,
consolidate statements, pull data from
banks in an automated fashion, ability
to repair and reject transactions in an
automated fashion.
With a plethora of developments
on bot h sides of t he i ntegrat ion
bridge, is it safe to assume benefits
to the corporations and their bank-
ers will outweigh the capital invest-
ment and the ongoing operating costs?
The answer depends primarily on
transaction volumes. As we investigate
the detail behind customer requirements
for an integrated solution with their
bankers, we fnd a variety of informa-
tion submissions. This includes both
transaction requests and demands for
information pertaining to specifc ac-
counts as well as other information, such
as money market or foreign exchange
rates, AP and billing systems and ap-
plications.
A complete integration solution,
where all information exchanged with
a bank or banks is performed through
a direct interface, is demanding on.
When all these connections are syn-
chronised with minimum human in-
tervention and adequate reporting and
transaction lifecycle management, the
corporate customers fnancial managers
will hold the key to direct involvement
with day-to-day banking, allowing them
to concentrate on their core activities,
such as investment and expansion plan-
ning and execution.
With a plethora of
developments on both
sides of the integration
bridge, will the benets
outweigh the capital
investment and the
operating costs?
A complete integration solution enables nancial managers to focus on their core activities
Many businesses have cash fow that varies
considerably. A business might have a rela-
tively large cash fow in one period, and a
relatively small one in another. Because of
this, frms fnd it necessary to maintain a
cash balance on hand, and to use working
capital fnance to enable coverage of short
term cash needs in periods when they
exceed the amount of cash fow.
Each business must decide how much
it wants to depend on working capital f-
nance to cover short falls in cash, and how
large a cash balance it wants to maintain
in order to ensure it has enough cash on
hand during periods of low cash fow.
Generally, variability in the cash fow
will determine the size of the cash bal-
ance a particular business will hold, as
well as the extent to which it may have to
depend on such fnancial mechanisms as:
invoice fnancing, post-dated cheque dis-
counting; bill discounting; factoring, etc.
Cash fow variability is directly related to
two factors: the frst, the extent to which
cash fow can change and the second, the
length of time cash fow can remain at a
below average level.
If cash fows decrease drastically, the
business will fnd it needs large amounts
of cash from either existing cash balances
or from a bank to cover its obligations
during this period of time.
Likewise, the longer a relatively low
cash fow lasts, the more cash is needed
from another source (cash balances or
a bank) to cover obligations during this
time.
As international and domestic trades
are increasingly conducted on open ac-
count terms, there is a corresponding need
to ofer fnancing solutions to cash fow
problems encountered by sellers who trade
on open account. Standard Chartered
Bank ofers various solutions for open
account fnance requirements. One of the
popular and efective solutions has been
receivable services products.
Standard Chartered Bank ofers vari-
ous with and without recourse solutions
under the receivable services products.
Factoring is fast-gaining acceptance
among exporters and is being ofered
as a valuable fnancial product among
banks and major fnancial institutions.
Te :oo8 global factoring volume has
almost doubled to s: trillion since :oo:
and is growing at a healthy :, year on
year [:] as compared to the growth rate
of world merchandised trade of 8 year
on year in :oo,[:].
By leveraging on Standard Chartered
Banks global network, we are able to pro-
vide open account trade products, which
are comprehensive working capital solu-
tions that provide funding, credit pro-
tection, sales ledgering and collections
services to clients.
Te open account trade product ofer-
ing by Standard Chartered Bank consists
of receivables services (with and without
recourse); portfolio receivable services
with recourse; correspondent factoring
through Factors Chain International (im-
port and export) as well as invoice fnanc-
ing (import and export).
Factoring in UAE has been growing
at a phenomenal pace, especially in the
last :8 months when traditional working
capital fnance is dimcult to come through
with banks posing various hurdles for
sellers to avail fnancing facilities.
What is unique in Standard Chartered
Banks ofering is that we are able to lev-
erage on the global network and provide
credit cover on buyers who are banking
within our network. Exporters who are
based in the UAE and export to US, Eu-
rope and the Asia-pacifc region, as well
as within the GCC, are able to use the
Banks services covering credit cover on
the buyers, collection services and sales
ledgering.
Te provision of all services under this
working capital tool makes it attractive
to sellers who are able to focus on their
sales, especially in atmospheres such as
the current global one, where cash is all
important for the business.
As the majority of trade in the UAE is
either local or within the GCC, Standard
Chartered Bank is able to deliver receiv-
able services covering markets like Bah-
rain, Oman, Qatar, Jordan, Lebanon and
Pakistan in the Middle East and North
Africa (MENA) region.
Standard Chartered Bank ofers this
service across all segments from oil and
gas in the energy sector to companies
trading in foodstufs and items such as
electronics.
Te services are used by global cor-
porates and large local corporates right
through to middle markets, as Standard
Chartered Bank is able to customise ofer-
ings on an individual need basis.
With no immediate signs of global eco-
nomic recovery on the horizon, customers
are looking to mitigate risks in their re-
ceivables at an afordable cost and Stand-
ard Chartered Banks world class solutions
helps sellers address this risk.
[:] Factors Chain International (www.factors-chain.com)
[:] International Trade Statistics :oo,, World Trade Organi-
zation, (www.wto.org/english/res_e/statis_e/statis_e.htm)
BY KRISHNAKUMAR DURAISWAMY, DIRECTOR-TRANSACTION BANKING,
REGIONAL TRADE PRODUCT MANAGEMENT STANDARD CHARTERED BANK
Open Account Trade
a Standard Chartered solution
Feature
Interview
In an exclusive interview for Cash &
Trade Zaki M. Jawad, Saudi Hollandi
Banks Head of Transaction Banking
Group explains why he believes there
is tremendous growth potential for
trade business in the kingdom.
Attention on asset quality
reaps rich rewards
This must be an opportune time to be
a banker in Saudi Arabia, which has
been protected from the worst eects
of the global downturn, and especially
to be working for the bank showing
the healthiest growth in protability
in the Kingdom during 2008.
Of course, our achievements during
:oo8 were excellent and the result of
teamwork, commitment and also our
exceptional customer care policy.
Were you satised with the growth in
your trade fees and commissions in
2008, up from 117,018 Saudi Arabian
Riyals (SAR) ($31,209) in 2007, to
SAR162,658 ($43,422) last year?
Overall, we are very satisfed with our
trade performance in :oo8. All areas of
trade performed well and each recorded
impressive growth in imports.
Have you budgeted for further growth
in 2009? Is the interest income for
trade asset backed nance inter alia
bigger or smaller than the fees and
commissions?
Budgets are in place for :oo. Income
from the lending portfolio is a key
component in any fnancial institutions
profts and SHB is no exception to this
general rule.
Can you elaborate on the success
of your trade asset backed nance
products in terms of number of
customers, level of assets and scope
for growth and innovation?
At SHB we adopt a conservative
approach to our fnancing. Te quality
of the asset is of prime concern to us,
more important than any other factor
and this has led to our success in asset
backed fnancing. Tere is tremendous
scope for the growth of trade business
in the Kingdom of Saudi Arabia and we
would compete for any business that
matches our risk criteria. We have also
developed some products to conduct
asset backed fnancing.
Do you nd certain industries make
more use of this source of nance
than others and from which industries,
if any, do you expect a wider take-up
in future?
In general, the trading sector is
much more involved in this source
of fnancing. Meanwhile, in view of
the increasing credit periods ofered/
demanded by the competition, the need
for bridging fnance is increasing.
How have you developed your
relationship with The Saudi Fund for
Development and in particular its SEP
programme?
We have had several discussions with
the Fund to explore opportunities
to work with them within their SEP
programme. We are currently evaluating
the programme and its benefts, and will
make a decision soon.
How has the shape of your trade
business changed in terms of volume
and value of L/Cs, guarantees and
collections?
We have not noticed a signifcant change
in the shape of our trade business.
Customers are becoming increasingly
risk conscious more than ever before,
so the instruments that provide a greater
degree of protection to both seller and
buyer are still much in demand.
Like other Saudi Arabian banks you
have enjoyed continuous growth in
prots from trade. Is trade considered
central to SHBs corporate bank
oering?
We have always enjoyed a signifcant
share of Saudi Arabias trade business
and this situation remains unchanged.
Trade is the core business of the
corporate banking sector and one of the
main contributors to the bottom line.
Have you found that the utilisation
of trade related credit facilities has
increased in recent, turbulent times?
In :oo8, all our trade facilities were
well utilised; although some areas are
now showing a slight downturn, overall
our trade facility utilisations remain at
healthy levels.
Has SHBs risk appetite for trade
facilities, corporate and FI changed in
recent times and, if so, how?
We are cautious and watching the
situation very carefully.
Obviously the risk appetite for FI needed
to change following certain surprises
taking place in the global market.
Have you adjusted your political risk
appetite to support exporters and, if
so, how, and in connection with which
countries/regions?
We have taken some measures to
strengthen FI risk management but it
has not afected our support to exporters.
What is the structure of your team
responsible for supporting trade in
terms of product management, sales,
client services and operations?
We have fully assessed the requirements
of trade customers and established
the necessary lines and allocated the
appropriate numbers of staf for the
smooth conduct of business.
Operations Units are the delivery points.
Trade Finance, a division under
Transaction Banking Group (TBG),
gives support through:
:) sales teams to monitor and increase,
where necessary, the utilisation of
facilities; swifly resolve customer issues
and, where required, provide technical
training to customers.
:) product management for relevant
improvements in products, services,
systems and procedures and also for
the development of new products and
implementation of best practice.
We serve our customers locally, through
the regional omces in Riyadh, Jeddah
and Al-Khobar.
Additionally, a trade sales team in Jubail
focuses on business in the industrial
area. We are proud of a strong, well-
experienced team to manage the trade
business at our bank.
How do you see the future of online
services for trade?
Online users are increasing. Customer
confdence levels in the new technology
are key to this development.
Currently, most of the customers use
online trade facilities for inquiries only.
Trade is notorious for exception
processing due to credit issues and
document discrepancies. Can you
comment on your experience in
this area and on any initiatives you
have put in place to help customers
improve their ecacy?
Credit and compliance are inseparable
in trade; protection and rights come
from these two elements. We take a keen
interest in educating our customers
on such matters. We regularly conduct
training programmes and seminars
to update them on current global
trade afairs, products, ICC rules and
publications.
What investment is SHB making in
improving its stas skills to help
educate trade customers and promote
increased levels of support for them?
We pay a great deal of attention to
the training needs of our staf and
ensure they participate in important
local and foreign seminars in order to
constantly update and enhance their
knowledge and skills. In addition to
regular seminars for our own customers,
SHB trade sales managers also conduct
customised training programmes as a
service to other companies whether they
are existing clients of ours or not.
What is your choice of core banking
system and trade system application
and are you satised with their
implementation?
We are satisfed with the performance of
the existing systems and are continuously
improving them to enhance operation
and emciency. Presently, we are working
on expanding our online and back-end
trade capabilities.
Do you have any plans for further
investment in this area?
We are committed to provide the best to
our customers and would not hesitate to
invest in technology in order to provide
convenience and superior service to
them if and when it might become
available.
Commerce
Headquartered in the Kingdom
of Bahrain for the past ::, years,
the Bahrain Maritime Mercantile
International group (BMMI) is a
diversifed retail, distribution, logistics
and contract services group.
BY CAROLINE MAGINN CMM TRADE PARTNER
B
MMI specialises in the distribution,
wholesaling and retailing of food and
beverages, and represents a leading
portfolio of global household brands. Te
group is also a strong international player
in the provision of contract-based supply
services for overseas governments and
non-government organisations, build-
ing its franchise within the GCC and
latterly in Africa, with the establishment
of Global Sourcing and Supply, where
logistics remains a challenge given the
shortcomings of the continents transport
infrastructure.
BMMI has established an omce in
Washington DC to manage important
relations with the US government and
non-governmental organisation clients,
reinforcing its status as part of the broad-
er-based community involved in govern-
ment contracting.
Listed on the Bahrain stock exchange,
BMMI is one of the fastest growing
companies in its sector, with an annual
turnover exceeding s:oom despite an
unprecedented downturn in the global
economy in which logistics has been one
of the hardest hit sectors.
Last year, :oo8, was a record one for
the group. Contributing to this success
was the opening of a new Alosra outlet
at Amwaj Islands in Bahrain part of
BMMIs new strategy to broaden its su-
permarket activities in the kingdom. A
strong focus will be placed on high qual-
ity delicatessen and ready-to-eat items as
seen in the launch of the groups Great
Deli division.
While Africa has contributed to a sub-
stantial increase in profts, work at home
continues at a brisk pace.
Since BMMI decided to expand the
groups presence outside Bahrain in :oo:,
operating profts have more than doubled,
indicating that well-managed companies
can aspire to regional and international
expansion.
Strongly capitalised, with healthy li-
quidity, no debt, a solid client base and
a steady earnings stream, BMMI is well
positioned to survive the current dim-
cult market conditions and continue its
acquisition programme as opportunities
arise.
Te company has continually invested
in human resources development, launch-
ing its internship programme for local
school-leavers and an executive pro-
gramme for graduates.
Te Alosra University Sponsorship
scheme helps students from low-income
families study for a degree at the Uni-
versity of Bahrain. Now in its ffh year,
the project has already benefted over
:oo students.Like all companies, BMMI
is naturally exposed to the same vari-
ety of risks that stem from the changing
economic environment and the volatility
of supply and delivery of products and
services. Managing and mitigating risk
on a systemic basis has been the key to
the groups success.
Of particular interest to CMM and
the readers of Cash & Trade is how suc-
cessfully BMMI has managed its cash
management and trade terms to enhance
liquidity and proftability. Several factors
should be examined:
Firstly, it came to agreements with
many longstanding suppliers to switch
from relying on Letters of Credit to devel-
oping open account terms, despite ongo-
ing concerns about political risks in the re-
gion (see table, right). Tis move required
confdence and conviction to negotiate,
and its success is a testament to the in-
vestment in people that BMMI has made.
Secondly, having invested in its ORA-
CLE ERP-based solution in :oo,, it has
continued to extract value from the in-
vestment, working with ORACLE on a
number of fronts to fne tune the system
to meet its requirements. For example, it
introduced automated invoice processing,
which reduced processing times from :o
minutes to : seconds, serving not only
to speed collections but also to improve
liquidity.
Notably, BMMI took the decision
to build a dedicated team of ORACLE
advisers who came to understand the
business and helped leverage further
benefts from improved management
information to aid day-to-day decision-
making from the ORACLE system.
Using IT to convert data into custom-
ised information and informed manage-
ment decisions is something few organisa-
The pursuit of
excellence in
dicult times
Milestone Year 2008
Key Achievements
Completes 125 years of
operations in the Arabian Gulf
Expands groups footprint to 12
countries across three continents
Establishes new African subsidiary
GSS (Global Sourcing & Supply)
Opens corporate liaison
oce in Washington DC
Launches another Alosra store,
at Amwaj Islands, in Bahrain
Revenues surpass BD80m
($210m) for the rst time
Record operating prot of
just under BD10m ($26m)
Total assets
increase by 10%
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tions capitalise on successfully.
Clearly, the future for BMMI, as for
others, will continue to present new chal-
lenges but the groups ability to develop
in-house talent to deal with these chal-
lenges will be the key to BMMIs ongoing
success.
BMMIs management team
Mohammed Turaif Assistant HR
Manager
Ammar Aqeel Group Financial
Controller
Laura Mejia Corporate Quality,
Performance and Communications
Manager
Jad Moukheiber Legal Afairs
Manager
Salah Al Haiki Administration
Manager
ViewPoint
Trade fnance has been caught in the crossfre of
the global economic crisis, both as a symbol of its
extensive reach and as a vital piece of the solution.
BY ALEXANDER R. MALAKET, CITP, PRESIDENT OPUS ADVISORY
SERVICES INTERNATIONAL INC.
Trade banking and nance
chain solutions was observed across the
globe, even in regions and with trading
partners previously considered too risky
for such terms. Te Middle East, where
documentary credit and other traditional
solutions have enjoyed relatively consistent
market demand, was caught in the wave of
innovation, and is working to develop new
variations to open account, supply chains
and working capital solutions.
Almost in parallel, leading fnancial
institutions worked to integrate certain
related lines of business such as trade f-
nance and cash management, as well as
correspondent banking, under broadly
mandated global transaction banking
units.
Hedge funds also saw great potential in
fnancing short-term trade, particularly in
then-lucrative emerging markets.
Tese realities, coupled with ongoing
global consolidation in the fnancial sec-
tor, and a pattern of proft compression in
trade banking, motivated senior bank ex-
ecutives to seek ways to re-intermediate
themselves, with enhanced proft, into the
business of international trade.
Te current global crisis has reinforced
the attractiveness of trade fnance as a line
of business, particularly given its counter-
cyclical nature, and has generated both
attractive returns and a positive profle
for business.
In short, these have been transforma-
tional times in trade fnance, and that re-
ality will endure beyond the current global
crisis. Te current fnancial downturn has
also highlighted and amplifed the inter-
est, developing for some time, in Islamic
banking and Islamic trade fnance.
American and European authorities
have sought to improve understanding
of the stewardship dimensions of Islamic
banking and to appreciate the character-
istics that have efectively served to screen
those institutions from the fundamental
drivers of the crisis.
Te demise of the documentary letter
of credit was predicted and promised for
many years, to the chagrin of long-time
bankers, and the anticipation of importers
and exporters across the globe.
In fact, the observation of a senior
banker some years ago that we were
one major crisis away from a rush back
to L/Cs has proved to be correct, given
the increase in usage of documentary
credits during the current crisis. Numer-
ous previously solid fnancial institutions
were forced to reassure the market on the
validity of their instruments and, in some
cases, to seek confrmations of the credits
from correspondent banks willing to take
on the fnancial exposure.
Just before the crisis, it became in-
creasingly common to hear concerns
that trade fnance was becoming more
like cash management, and cash man-
agement becoming increasingly similar
to trade fnance. Trade, the argument
goes, is shifing its emphasis from risk
mitigation to fnancial settlement in the
context of open account transactions.
Meanwhile, cash management is ap-
proaching trade fnance in that its reach
is increasingly cross-border, as bank cli-
ents of all sizes engage in international
commerce.
Although we expect the shif to new
product solutions to re-engage afer the
crisis begins to reverse in earnest, the
signs that the global economy has bot-
tomed out remain tentative and inconsist-
ent. Trade will, despite recent forecasts
of slower growth, remain an important
force in the re-ignition of the global eco-
nomic engine; this reality will ensure the
momentum of product development and
innovation in trade fnance continues.
Financial and economic crises will un-
doubtedly infuence the next round of in-
novation. New solutions in open account,
supply chain fnance and pre-shipment
fnance, will include renewed focus on the
risk mitigation dimension of trade fnance,
an area that had, until recently, faded into
the background. Additionally, the provi-
sion of information (on shipment status,
fnancial fows, or indeed any aspect of a
transaction) will come to the forefront.
Te unparalleled involvement of gov-
ernments through export credit agen-
cies, and the global fnancial community
through IFIs (International Financial
Institutions) provides a stark illustration
of the degree to which the global trade
fnance map has been redrawn. Te en-
gagement of ECAs and IFIs previously
decried as market-distorting government
The current world
crisis has reinforced
the attractiveness
of trade nance as
a line of business
T
he business of trade fnance has been
through one of the most dynamic,
innovative periods in its evolution as
technology has emerged to fulfl its early
promise. At the same time, bankers and
trade fnanciers have actively sought to
develop and deploy new business solu-
tions in response to the needs of clients
across the globe.
Just as these developments have been
gaining momentum, trade fnance fnds
itself at the centre of the global econom-
ic crisis, both as an illustration of the
breadth of the crisis and as a key element
of its eventual resolution.
Global sourcing patterns have changed
signifcantly over the past decade, with
China becoming a major manufacturer
and supplier, and global retailers such
as Wal-Mart, Carrefour and Zara ex-
ercising increasing infuence on their
supply chains. Tese changing realities
were closely followed by a shif from tra-
ditional trade fnance products to open
account and supply chain-related solu-
tions. Tese tend to be less complex and
costly for customers (also less secure) but,
perhaps more critically, signifcantly less
proftable for trade fnance providers.
The shift to open account and supply-
A Chinese textile worker. The primary engines of the global economy China and the US are banking
on a speedy return to buoyant international trading
interference, has been largely welcomed by
global fnancial markets, and even by the
most ardent proponents of free-market
economics.
Te focus on Islamic fnance is likely
to continue to expand, among regional
fnancial institutions and the global play-
ers who had begun to explore this area
as a potential line of business prior to
the crisis.
Operationally, trade fnance has also
shown signs of evolution. Trade bank op-
erations have, in Cash & Trades view, long
been under-valued and underestimated by
fnancial institutions, and by the market,
largely the failure of trade specialists in
communicating the value contributed
by operations teams in the trade fnance
equation.
Te question of a lack of transactional
skill among front-line relationship manag-
ers must also be addressed.
Te shifing landscape of banking, in-
cluding trade fnance, which includes
large mergers and an exit of numerous
institutions from the trade business, will
only partially mitigate this challenge.
Long training cycles (typically three
to fve years) persist due to the inemcient
learn on the job approach adopted by
many operations managers. Tis combines
with the ageing nature of the trade opera-
tions labour pool worldwide, and the lack
of new entrants into the trade back omce,
to create an ongoing resource issue. Te
shortage has been widely acknowledged as
an area of concern across the globe, from
the Americas and Europe to trade power-
houses in Asia and the Middle East.
Te situation may have been mitigated
to some degree by ongoing fnancial sec-
tor consolidation and the exit of some
institutions from the international arena.
However, over the longer term, the skills
and resource issue will remain on the
horizon. Even the advances in automat-
ing certain aspects of documentary op-
erations will not sumciently ofset the re-
source issue. Markets seeking to establish
or maintain a serious capability in trade
will look to access these increasingly rare
resources.
Until recently, human capital manage-
ment and maintenance were identifed
as the most critical challenges faced by
trade bank executives. Te experience in
the GCC region is typical: unstable staf-
ing and resourcing in banking, includ-
ing trade fnance, coupled with regular,
signifcant increases in salary scales as
fnancial institutions scrambled to retain
staf at all levels, or sought to hire them
away from competing institutions.
On a global level, including in key mar-
kets across the Middle East, the cost of
maintaining an operational capability in
trade fnance remains a critical question
for senior managers. In addition to high
fxed costs related to stamng, the escalat-
ing costs of implementing and maintain-
ing trade-related technology are ofen a
make-or-break factor in management
decisions.
Te question of how best to handle
trade operations has been part of the
landscape for over :, years; operational
centralisation, followed by a wave of out-
sourcing arrangements, with a few play-
ers succeeding in developing a business
around trade processing. Te outsourcing
question will remain central to the future
of trade bank operations.
Trade bank clients have seen their
business and the competitive landscape
reshaped over the last two to three years,
and again over the course of the current
economic crisis.
Sourcing patterns have changed ir-
revocably, with international exporters
increasingly engaged in import activities
to source components or inputs to pro-
duction, and foreign investment linking
increasingly closely with trade activities.
Tis idea of closely related import, export
and investment activity has been referred
to as integrative trade.
For markets such as Dubai and Hong
Kong, long skilled in re-export activities,
this concept is perhaps not so new. How-
ever, its implications across the globe are
signifcant, and have reshaped expecta-
tions in the trade fnance sector.
Trade bank clients, from SMEs to cor-
porate multinationals, continue to require
each of the four major solutions provided
by trade fnance specialists: payment fa-
cilitation, risk mitigation, fnancing and
the provision of timely (and increasingly
detailed) information.
As business shifed to open account,
the risk mitigation element was de-em-
phasised. However, recent events have
brought this dimension to the forefront
of the trade fnance value proposition.
Additionally, the provision of information
about a particular shipment or about
payment status, for example has become
increasingly valued. Clients, from SMEs to
large corporates, are looking for near just-
in-time information about every aspect
of their trade activities, to the point that
multi-bank systems have gained traction
over the past :8 months.
Much in the way that customer ex-
pectations in the area of cash manage-
ment have evolved to raise the demands
on service providers, clients engaged in
international trade are seeking greater
value: enhanced expertise and advisory
support, more efective technology, and
faster response in areas ranging from
credit approvals to document-checking,
to transaction settlement.
Te global fnancial crisis, triggered
by toxic mortgage assets primarily in the
United States, was exacerbated by a sud-
den mistrust among banks relative to the
magnitudes of potential exposure. Tis
dynamic sent a chill through the inter-
bank lending markets, with disastrous
efects. Tat fast-developing and harsh
reality had the efect of raising the cost
of trade fnance, reducing its availability
and global reach, and ultimately, contrib-
uted to the evaporation of pre-shipment
fnancing.
Te global shipping industry continues
to sufer as a result, with container ship-
ping costs reduced by o, volumes from
Asia reduced by over o and key ports
such as Singapore experiencing unprec-
edented congestion as ships wait, empty,
for the possibility of a cost-covering trip
west.
Trade clients, from emerging market
SMEs to US and European-based multi-
nationals, are experiencing unprecedented
tightness in the trade credit markets de-
spite the intervention of ECAs and IFIs;
banks with credit line availability and risk
appetite have been able to earn premium
pricing, and business in general faces ten-
sion between the tough realities of domes-
tic markets and the lure of international
trade as one option to sustain revenues
and operations.
Irrespective of the harsh current reali-
ties, businesses across the globe are look-
ing at this crisis as temporary, even as they
acknowledge it may have transformational
and irreversible consequences. Te key for
providers is to meet the challenges, while
continuing to position themselves for the
inevitable return to normalcy whatever
shape that normalcy might take in the
end.
Regulatory and compliance issues have
come to the forefront in international
business and trade, especially since the
spectacular corporate failures at World-
Com, Enron and elsewhere, and also
in the context of tighter anti-terrorism
measures.
Regulations which require bankers
to Know your Client (KYC), have been
extended to a more stringent requirement
dubbed KYCC, or Know your Clients
Client, with the efect, for example, that
a Dutch bank must conduct due diligence
on a new trader in Antwerp, but also ex-
tend that due diligence to the traders cus-
tomer in West Africa. Similarly, fnan-
American and European
nancial institutions
have been working
hard to develop Islamic
nance capabilities
Customer expectations
in the area of cash
management have
evolved to raise
the demands on
service providers
ViewPoint
The worlds shipping industry is one of the many sectors hard hit by the economic downturn
crease the emciency and throughput of
transaction processing in trade banks,
the current situation is perhaps better
characterised as two-pronged: technol-
ogy continues to support banks business
models, as banks and providers invest in
technology to ensure they remain engaged
(are re-intermediated) with clients. At
the same time, technology has facilitated
unparalleled transparency and immediacy
of information about every aspect of a
trade transaction, and indeed, about every
dimension of a clients global portfolio of
business.
An adequate technology platform is
no longer a competitive advantage or dif-
ferentiator, but rather a basic requirement
for any institution which purports to be a
credible trade fnance provider.
Companies such as TradeBeam and its
Global Trade Management model, which
covers everything from logistics to com-
pliance to fnancing, or TradeCard, one of
the early pioneers in the replacement of
paper-based trade with electronic docu-
mentation and event-triggered decision-
making, continue to stretch the bounda-
ries in terms of application of technology
to trade fnance.
Technology providers that previously
focused on payments solutions are now
active in the trade fnance space; other
organisations such as Bolero, a UK-head-
quartered frm frst established with the
active participation of SWIFT (which still
retains a small equity stake in the com-
pany) has been developing and deploying
a multi-banking solution sought by more
and more trade bank clients.
Innovative business models and part-
nerships are increasingly common in
the trade fnance landscape. From the
groundbreaking combination of JPMor-
gan Chase Vastera to the evolving col-
laborative model developed by SWIFT
as the Trade Services Utility (TSU), these
alliances will only grow in breadth, variety
and scope over the coming years.
Technology in trade fnance has fnally
reached a certain maturity: it has enabled
the beginnings of a transformational peri-
od in the industry, as its serves both trade
fnance providers and ultimate customers.
Global trade is set to slow for the frst time
in decades. Te fnancial crisis that has
engulfed the globe includes a shortage of
trade fnance, the depths of which are un-
clear, even as some providers reap record
profts. With a s:,obn injection targeted
at trade fnance and with the primary
engines of the global economy (the United
States and China) both profoundly in need
of a healthy global trading environment,
trade fnance will retain signifcant profle
among policymakers, bank executives and
corporate leaders.
Trade will be one of the forces to pull
the global economy out of its current tail-
spin, and trade fnance, as a business, can
take the opportunity to do two things
simultaneously: demonstrate the efective
and valuable functions of its traditional
instruments and solutions, while concur-
rently innovating to position for the post-
crisis economic and commercial order.
While traditional leaders such as the
US, the UK, Europe and parts of Asia suf-
fer the crisis and work to recover some-
times by retrenching domestically other
markets such as Canada and the Middle
East, by virtue of some unique features
of their respective trade and fnancial
environments, can extend their infuence
beyond its current state.
Similarly, fnancial institutions in the
Middle East, particularly those governed
under principles of Islamic fnance and
Sharia Law, have attracted positive at-
tention from various quarters, as a direct
result of the relative health of the fnancial
sector in the region.
Success in fnding opportunity in the
current crisis will create a competitive
advantage that will last well into the re-
covery phase. It is from the ashes of the
current turbulence that a new economic
environment will rise.
cial institutions governed by the KYCC
standard will require high transparency
about business dealings across the globe,
including in the Middle East.
Islamic fnance principles, with their
close engagement between bank and client,
the partnership and shared investment
element of certain transactions, and the
common practice of having a bank take
title to goods being fnanced, provide a
sound basis for higher levels of trans-
parency in a trade transaction. In fact,
this close engagement and relationship
connection between client and banker
is one pillar upon which fnancial insti-
tutions governed under Sharia Law are
supported.
As the international fnancial situation
continues to dominate discussion across
the world, the fundamental importance of
the global regulatory regime is strikingly
illustrated by calls for a wholesale rede-
sign of the economic system, a rethink-
ing of international institutions such as
the World Bank and the IMF. Even the
long-anticipated Basel II requirements,
championed by the Bank for International
Settlements (BIS) have been brought into
question by the crisis.
Te regulatory environment related to
trade and trade fnance is very much on
a path of greater stringency, from anti-
money laundering measures, to automated
monitoring of OFAC (US Omce of Foreign
Assets Control) restrictions, to intelligence
agencies sifing through international
fnancial transactions facilitated through
the SWIFT network every dimension of
trade, from the fow of goods to the fow of
money, is subject to tighter controls.
Regulations are here to stay in fact, to
expand and all parties, from corporates
to service providers, have the choice of act-
ing proactively to help shape the emerging
regimes, as well as their responses to the
changing regulatory environment.
Te technology dimension of interna-
tional trade and trade fnance is central to
the context within which clients and serv-
ice providers operate. Since early attempts
to dematerialise trade documentation in
the :os, to more recent eforts to provide
full-scale, technology-enabled Global
Trade Management solutions, technology
has been increasingly infuential in shap-
ing business models and value proposi-
tions related to trade and trade fnance.
While early technology served to in-
An adequate technology
platform is no longer a
competitive advantage
but a basic requirement
for any institution to
be a credible trade
nance provider
ViewPoint
Success in nding opportunity in the current crisis will create a competitive advantage that will
last well into the recovery phase
The fundamental importance of the global regulatory regime is strikingly illustrated by calls for a wholesale rethinking of international institutions
such as the World Bank (Robert Zoellick, president of the World Bank, above) and the IMF
While leaders such as
the US, Europe and Asia
suer, other markets
such as Canada and
the Middle East, by
virtue of some unique
features, can extend
their inuence
Training
Turning the tables on
nancial turbulence
Now is a key time to
invest in the skills
of sta, not only to
mitigate risk but
also to achieve a
competitive advantage
Te importance of raising the bar in
challenging times by DEREK ENNIS
of Coastline Solutions.

A
ccording to recent fgures from the
World Trade Organisation (WTO)
global trade is set to decline by
around in :oo compared to last year.
We have all read about the causes from
falling demand to the tightening of credit
lines and a general loss of confdence.
But in these difficult times, what
does this mean to those involved in
the finance of trade? What action or
precautions need to be taken by banks,
importers, exporters, freight forward-
ers and every other specialist involved
in the fnance and international trade?
Te key point is that the risk of not be-
ing paid for shipped goods is increasing.
Tis is precisely why the demand for tradi-
tional trade fnance products is increasing.
Exporters are no longer as comfortable
selling on open account because, even
if they have a trusting relationship with
the buyer, they do not want to take the
risk that the buyer will be out of business
before payment is made, or that the delay
in receiving a payment will adversely af-
fect their own cash fow.
training, travel and associated expenses.
Companies do not want the additional
overheads associated with seminars, spe-
cialist courses and conferences. So how is
it possible to develop staf and at the same
time control costs?
Te answer lies in technology. Tere is
no longer a need to spend large sums on
travel and expenses, everything can be
done at the employees own omce work-
station. Te internet allows training to
be brought to the staf rather than taking
staf to the training.
Early computer-based training was
essentially the presentation of books on
screen, with the trainee fipping from page
to page, but things have moved on a long
way from this. Using modern graphical
programming and the power of the inter-
net it is now possible to deliver rich inter-
active training anywhere in the world.
In fact, online training ofers signif-
cant advantages over face-to-face training.
One of the key benefts is consistency. You
are assured that every learner is hearing
exactly the same message, and consistent
guidelines are given to all.
If you can be sure of the quality of the
content, you are guaranteed the message
is not being lost in delivery.
And because each trainee is in control
of his or her own training, with the op-
portunity to revisit sections at will, each
has the ability to set their own pace of
learning, rather than pace themselves to
the average of a group.
Contemporary online training also
allows interaction with course leaders
and other trainees through chat rooms,
web conferences and other communica-
tions possibilities ofered over the internet.
Complex simulations can be created to
CASE STUDY
Coastline Solutions, an Irish
company, has worked with the
International Chamber of
Commerce in delivering training
to the trade/nance world for
the past 10 years.
Coastline oers a range of
trade/nance training courses
specically aimed at the sta of
banks, exporters, importers and
associated professions, in how to
handle trade nance documents
correctly and prociently.
Current modules available include
Letters of Credit (Basic and

Advanced), Documentary
Collections, Standbys and
Guarantees, and new oerings
are in the pipeline. In recent
times over 10,000 people in more
than 100 countries have used
these courses to increase their
professional skills.
Coastlines UpSkill 600 course
was probably the most popular
training course in the world in
preparing sta for the introduction
of the UCP 600 Rules on customs
and practice documentation
and is still widely used as a
reference resource.
place the trainee in lifelike environments
which allow for the practise of what they
have learned in a protective environment,
without any real risk or exposure.
Now is a key time to invest in staf
skills, not only to mitigate risk but also
to achieve a competitive advantage over
rivals. In dimcult times customers are
much more discerning. If you can show
your staf are well trained and more capa-
ble of delivering the best quality of service,
you will win the business and there is no
reason why this investment should break
the bank. By investing wisely in modern
technology, it is possible to make your
employees the best in their business with-
in a budget that is tailored to the current
market conditions.
Because of this, buyers and sellers are
turning to the banks for Guarantees, Let-
ters of Credit, and other traditional prod-
ucts to provide security of payment.
But it is important to remember that
while this takes much of the risk away
from the trader, the risk of non-payment
is now carried by the banks.
Another risk factor to sellers lies in
the commodities markets. In an era of
falling commodity prices, some buyers
are happy to get out of commitments to
pay for goods if the same commodities
can be sourced elsewhere at better prices.
In these situations, it can be in the buyers
interest that trade documents are non-
compliant, so that payments linked to the
contracts are not made. But if the nomi-
nated bank pays the seller and the issuing
bank refuses the documents, then it is the
nominated bank that loses out.
In the good times, documents are
presented to banks, and sellers get paid.
But these days everyone is watching the
detail far more closely. In such times, it
becomes vital that compliant documents
be presented, and equally important that
the banks examine the documents care-
fully and correctly.
Te sellers skills in preparing docu-
ments, and the banks skills in examining
documents are vital.
In an environment of intense scru-
tiny, trade fnance staf (both in export-
ing companies and in banks) must be
equipped with the skills to do their jobs
correctly.
It is more important than ever to in-
vest in staf development and training for
employees to attain the necessary skills.
But with revenues and profits falling,
one of the frst things to be cut is ofen
Highly trained trade nance sta who can
be relied on to deliver a quality service can
be pivotal in winning new business and it
wont break the bank
Investing wisely
in sta training
is key to opening
the door to new
opportunities
Te Middle East has only recently begun to feel
the impact of the global downturn in earnest
but, writes ROBERT WATSHAM of global headhunters,
Odgers Berndtson, the region is well placed to take
advantage of the upturn when it arrives.
Human Capital
Financial talent means
the future looks bright
T
he Middle Easts economies continue
to register growth although there is
little sign of the business expansion
and frenzied trade activity being hailed
just :o months ago. Almost three fnancial
quarters went by before the Gulf States
realised the global economic slowdown
had hit them and was about to impact on
their businesses.
As a headhunter who specialises in
the world of global transaction banking,
including the overall MENA region, it
has been interesting to watch optimism
turn to pessimism over an :8 month pe-
riod. However, one thing sets the region
apart from the rest of the world: a busi-
ness mentality realism and determina-
tion as described by one leading Gulf
banker that suggests it will trade out of
the recession.
With oil at s:,o per barrel a year ago,
the Gulf Cooperation Council (GCC)
states were anticipating continued eco-
nomic growth. But the region is always
cautious and expansion was planned care-
fully across certain sectors. China and
India, meanwhile, were buying raw goods
at an unprecedented rate with Dubai rep-
resenting the hub of the trade process.
However, all suddenly went quiet as oil
prices dropped to around s,o per barrel.
Dubai sufered an overnight realign-
ment: property prices went into freefall;
unemployment increased sharply; ex-
patriates began to pack up their lifestyles
and move on. Fortunately, the Central
Bank of the United Arab Emirates was
quick to guarantee bank deposits and
interbank lending, as well as shoring up
liquidity by injecting much needed capital
into the fnancial system. Large private
equity frms publicly breathed a collective
sigh of relief, while quietly calculating
multibillion dollar paper losses. Many
Ultra High Net Worth families felt, maybe
for the frst time, the unhealthy draught
of a recession.
Recent months have seen turmoil in
the Kuwait Stock Exchange, and the coun-
try has also witnessed the recapitalisation
of Gulf Bank. Te situation prompted
the government to step in to support the
economy with a fnancial stability law,
introduced to assist Kuwait overcome the
efects of the global fnancial crisis. On a
more positive note, yesterdays enemy is
tomorrows friend; Iraq sits to Kuwaits
northern border and is oil rich the
pickings are potentially enormous if this
small state can make friends with its big-
ger northern neighbour.
Saudi Arabia now has a seat at the top
table of G, states. However, it has not been
immune to the deepening global recession.
Indeed, at the time of writing, a major
Riyadh chosen as the host city for a new
GCC Central Bank. Whilst some coun-
tries actively oppose any union, the signs
overall are looking good as Gulf omcials
challenge the global fnancial downturn
giving added impetus to eforts to improve
monetary policy. Tis has thrown the
need for a common currency into focus.
Te premier transaction banks have been
in the region for a number of years. Sev-
eral have located key personnel in the
main countries, whilst others have quietly
hired senior business managers who know
the entry points to success.
Technology is being leveraged to allow
clients (both corporates and fnancial
institutions) to handle cash management
and trade fnance more emciently around
the region. Risk management and compli-
ance is high on the agenda. And borrowers
are increasingly turning to export credit
agency (ECA) fnancing to underpin new
or stalled infrastructure projects.
Correctly priced trade related deals
back to the trading mentality of the region
may well be the catalyst that unlocks
the source and supply of much needed
funding.
From a headhunters perspective, these
are not entirely happy times. However, the
war for talent is still ongoing. Te market
is turning and banks must not look just at
what is available in the bargain basements
on the street.
When an economy goes into reverse,
it exposes those who cannot implement a
strategy for recovery. Well-run fnancial
institutions now need to invest in people
for the future those who can help the
MENA region evolve as a fnancial base
for global and regional companies as they
set up or expand.
In short, financial integration will
work in the GCC states and the region
will recover maybe quicker than certain
other more mature markets. Business
confdence is fragile, but there are signs
it is slowly returning.
Te region has learned from the mis-
takes of others and is experiencing a sub-
stantial correction. But that correction will
be followed by a bounce back. Te Middle
East is an area that is always quick to take
advantage of potential opportunities.
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Odgers Berndtson was the frst of the major executive
search consultancies to establish a presence in
the Gulf, opening its omce within Dubais DIFC
in October :oo. Robert Watshamjoined Odgers
Berndtson in :oo and runs a dedicated Wholesale &
Transaction banking practice. He has been successful
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world for some of the leading global banks.
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holding company has defaulted, leaving
the banks and rating agencies adjusting
their estimates downwards. With the col-
lapse of oil prices sending the Kingdom
into defcit, the Saudi Arabian Monetary
Authority has had to oversee an injection
of capital into several of the countrys
banks. Whilst some of the lessons learned
from Dubais building boom have been
passed on, the stimulus of building four
economic cities in the sand may take
longer than planned to be realised. How-
ever, the underlying reasons are sound:
to diversify the kingdoms reliance on
hydrocarbons and related industries; and
to safeguard jobs and housing for a grow-
ing population.
Bahrain, meanwhile, has continued
to try and attract new institutions to the
kingdom and is well situated as a global
Islamic banking hub. It is, however, fac-
ing the same challenges as the entire Gulf,
with inward investment drying up and
major infrastructure projects being put
on hold. Two of the islands major banks
have sufered from their wholesale bank-
ing structures and have given notice of a
push into the consumer fnance world.
So where does that leave the global
transaction banking sector? Falling inter-
est rates have had a negative impact, but
it is still growing and achieving increased
visibility at board level, both in-house
and with global clients who need to know
where their cash is and how it is being
managed. It is now a highly professional
business, with a far larger part to play at
this stage of a fnancial crisis and with
scarce liquidity. An interesting develop-
ment in the market has seen the Asso-
ciation of Corporate Treasurers set up
a branch in the Middle East designed to
speed up professionalisation of the busi-
ness.
Monetary union and the single Gulf
currency are high on many agendas, with
One thing sets the
region apart: a business
mentality that suggests
it is likely to trade out
of the recession
Well-run nancial institutions now need to
invest for the future in people who can help
the MENA region evolve as a nancial base for
global and regional companies
Analysis
I
f cash is king, given the global fnancial
turmoil of the past :8 months, then so
too is the need to cut costs. Many banks
in the GCC which cater to corporates in
the region are being squeezed, just at a
time when they need to innovate and ex-
pand to ensure the loyalty of their clients
and to meet tougher regulatory require-
ments. Outsourcing their cash manage-
ment and trade fnance activities to spe-
cialist providers may be one solution.
Mid-tier banks are caught in that per-
fect storm, comments Michael Burkie,
Market Development Manager for Europe,
the Middle East and Africa (EMEA) at the
Bank of New York Mellon. Tey are caught
between the need for regulatory compli-
ance and the lack of capital, facing stress-
tests, he told Cash & Trade. Tey have
to divert funds from capital expansion for
the front omce, new branches, product
development, technology to building up
their capital. Yet if they cant expand, their
margins will drop.
While the concerns of traditional cor-
porate treasurers are the nuts and bolts
of banking, he says that some banks have
decided that cash management and trade
fnance activities are support functions for
their core business, rather than an inte-
gral part of what they ofer. Both proc-
esses, Burkie adds, depend on a costly
and closely monitored infrastructure.
Because many banks are experiencing
sub-optional returns on these activities,
they are concluding that these functions
are ideal for outsourcing to specialist pro-
viders. Such a move, he says, would also
allow mid-tier banks to beneft from the
economies of scale realised by the global
banks.
At present, investment in a state-of-the-
art cash management and trade fnance
system is extremely expensive, in terms of
both development and operational costs.
Average start-up costs for a full range of
functions, including liquidity, payments,
the supply chain, imports and exports in
a real-time and multi-currency environ-
ment, can total some s:oom. Tis includes
the initial costs of technology, personnel
and membership in the worldwide fnan-
cial telecommunications network, SWIFT.
Disaster recovery systems, together with
back-up energy supplies and telecoms
providers, can add even more.
Monthly running costs of up to
s,oo,ooo are not unheard of, observes
Burkie. Still more overheads, and/or ini-
tial capital outlays, may be involved if
the system needs to be updated. So, too,
if it needs to respond to changes in the
banking environment to take account
of advances in technology or the need to
comply with new multinational regulatory
guidelines or additional anti-money-laun-
dering procedures. Given this, Burkie
maintains, the proprietary working capi-
tal transaction services that banks ofer
to corporate clients may simply not be
feasible for many at present, even though
such a service is increasingly vital to meet
the demands of corporates.
So, whats the answer? Investing in
new technology platforms or in new cash
management products may be advisable.
But for those banks which need a full
processing service, it may be necessary
to turn to the large global providers, such
as Citicorp, Deutsche Bank, J.P. Morgan
Chase or HSBC or, as Burkie argues, to a
specialist provider.
For mid-tier banks, a provider such as
BNY Mellon, State Street Corporation or
Chicago-based Northern Trust, may be
more cost-efective, other bankers agree.
Tese three, they add, have the advantage
that they are long established world lead-
ers, and highly respected, in their felds,
which include custodial, securities and
asset services.
Perhaps even more importantly, as
other industry analysts and bankers have
pointed out, is the fact that these three do
not compete with their corporate bank
clients. Unlike the global banks which
ofen have branches in the very cities and
regional fnancial centres in which their
corporate banking customers are also
operating, these specialists tend to operate
in the GCC and in other parts of Europe,
the Middle East and Africa through rep-
resentative omces which concentrate on
their corporate clients.
If these providers already service se-
curities and assets, why not payments?
asks Burkie. Tis doesnt have to do with
technology or product, he emphasises. It
is simply cost-serving. It is the operating
cost model. It helps it to change.
If requested, the specialist service pro-
vider can also undertake all the back-
omce functions typically performed by
the corporate banks, such as multiple
currency payments and trade document
checking, as well as all other trade-related
operations and custody management. Tis
eliminates any potential competitive risks
that might be incurred should these vital
operations be turned over to a more gen-
eralised global bank which, as a result,
would gain access to a corporate banks
vital information on their own corporate
clients.
So what are the cost benefts of using a
specialist provider, a mid-tier bank might
ask. Burkie is quick to respond. Te proc-
ess not only relieves the outsourcing bank
of the steep initial costs, it also turns a
high, fxed cost into a much lower variable
cost. Te business can then be budgeted
almost on a pay-as-you-use basis, he adds,
or on a pay-as-your corporate-clients-
use basis.
Tis will help with any challenges that
may arise as a result of limited credit fa-
cilities, Burkie notes. It also gives the
outsourcing bank greater control and
fexibility over the services it ofers to its
corporate clients, as well as better man-
aging its revenue/expense ratio. Once
the outsourcing agreement is in place, he
adds, any further future expenses, such
as new payment channels and regulatory
adaptations also become the responsibil-
ity of the specialist service provider. Tis
frees the outsourcing bank from potential
future transaction risk, as well as system
Outsourcing for Corporate Banks
Bahrains banking sector has the highest
Tier 1 capital-to-assets ratio in the Middle
East, according to gures compiled by
The Banker and Cash & Trade. In 2008 the
country scored an aggregate ratio of 17.96%,
compared to 14.8% in 2007.
This placed themahead of second-ranking
UAE, whose combined ratio stood at 14.32%,
down by 1.63%. Saudi Arabia came in third,
with a 2008 gure of 12.56%, followed by
Kuwait with 11.41% and Egypt with 6.16%.
Although Arab banks, including those in the
GCC, have not been immune fromthe eects
of the global nancial crisis, banks in both
Bahrain and in Egypt managed to increase
their Tier 1 capital, a sharp contrast to the
situation prevailing in the banking sectors
of the US and Europe. In Bahrains case, the
increase amounted to more than 3%, an
impressive gure in the current international
climate. Overall, banks in the GCC and in
Egypt have ratios well above the Basel II
requirements.
In terms of the ratio of pre-tax prots to
capital, Egypt scored the highest in 2008,
with a gure of 25.92%, up almost 1% on
2007. Kuwait came in second, with a ratio of
21.69%, although this was down by more than
three per cent compared to 2007. A slightly
larger fall occurred in Saudi Arabia, where
the 2008 ratio amounted to 17.15%, followed
by the UAE with 14.68%, down almost four
percentage points.
In absolute terms, National Commercial Bank
and Riyad Bank led the list of the Arab Worlds
top 20 for Tier 1 capital, with $6.7bn and
$6.1bn respectively, followed by Emirates NBD
with $5.6 billion. This put themjust ahead of
the Kuwait Finance House and Al Rajhi Bank.
Virtually all of the top 20 came fromthe GCC,
except for Amman-based Arab Bank, whose
Tier 1 capital in 2008 reached $4.6bn.
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Kuwait Finance House Kuwait ,8i
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Arab Bank Jordan o8
First Gulf Bank UAE o
National Bank of Kuwait Kuwait o
National Bank of Abu Dhabi UAE o81
Abu Dhabi Commercial Bank UAE ,,,
Qatar National Bank Qatar o18
Banque Saudi Fransi Saudi Arabia o1,
Arab National Bank Saudi Arabia 1,i
Mashreqbank UAE 11,
Awal Bank Bahrain i,oi
Commercial Bank of Qatar Qatar io
Arab Banking Corporation Bahrain i,o
Dubai Islamic Bank UAE ii,
Saudi British Bank Saudi Arabia ioo
The process relieves
the outsourcing bank
of the steep initial
costs, and turns a high,
xed cost into a much
lower variable cost
inoperability concerns.
Unlike many other US banks and f-
nancial institutions, BNY Mellon, State
Street and Northern Trust have quietly
gone about their business, operating in
the conservative and prudent way that
they have for more than :oo years or, in
the case of BNY Mellon, ::, years. It may
not be glamourous, but it is cost-efective,
and enduring. For corporate banks in the
GCC, the fact that all three have opened
up representative omces in Abu Dhabi
and/or Dubai, as well as in the case of
BNY Mellon Cairo, Beirut and Istanbul,
promises a potential collaboration across
borders that could beneft both the GCC
and other mid-tier banks in the Middle
East and North Africa.
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Bahrain banks lead in capital/asset ratios
BY PAMELA ANN SMITH
Training
T
he Internet, new technology, trade
moving East globalisation and then,
the fnancial crisis too! Corporate
treasurers have seen it all and many are
still reeling from the implications. But one
consequence is that they are increasingly
taking centre stage in their organisations,
and their views are being heard at board
level afer years of relatively benign ne-
glect.
Corporations and their shareholders,
as well as the owners of many privately-
held companies, are increasingly realising
that steady, reliable revenue streams, even
more than proft and loss, are the key to
stability and survival in the future, and
will be vital when the time comes to take
advantage of an international recovery, or
to increase market share and geographic
sweep. Electronic banking and the In-
ternet have given, or can give, corporate
and company clients more freedom from
traditional banking practices. Te rise
of industry specialists in payments and
cash management, supply chain and trade
fnance, as well as oferings from non-
banks, provides many more potential
choices.
But most importantly, the lines be-
tween cash management and trade fnance
have become increasingly blurred. Te
move away from cash and trade silos has
been driven by the needs of clients, com-
ments Marilyn Spearing, head of trade
fnance and cash management corporates
at Deutsche Bank. Te role of corporate
treasurers within organisations has devel-
oped and treasury has become the centre
of risk and working capital management.
Tis, she says, means that banks must
develop integrated solutions for managing
the fnancial supply chain and transac-
tion banking in general which can ofer
corporations a variety of services, from
trade risk mitigation and working capital
management to systems integration and
the streamlining of all related processes.
While much of the Gulf and the wider
Middle East has escaped the worst ef-
fects of the fnancial crisis and subsequent
economic recessions that have hit the US,
Europe and Japan, many banks in the
region have been afected by what has
happened in the international credit and
debt markets. As a result, new lending
to their corporate clients and to wealthy
individuals is slowing. Many local and
regional companies face a dimcult time
raising funds, or renewing loans, particu-
larly given the relative lack of developed
capital markets in many parts of the GCC
and MENA.
Tis helps to explain why treasurers
and their counterparts in many Arab-
owned businesses are beginning to realise
that liquidity cannot be taken for granted.
Others, along with their counterparts in
the US, Europe and Japan, who have been
adversely afected by the global slowdown,
may actually see liquidity as their single
most important concern when it comes to
managing their cash positions.
Still others are fnding that in a time of
global fnancial turmoil, foreign exchange
risk is their number one worry, especially
given the huge volatility that the worlds
leading currencies have experienced in the
past :8 months. And they are not alone:
such dramatic ups and downs in currency
pairs have given bankers in the region
sleepless nights, too. Corporates and com-
panies in the region are also confronting
counterparty risk, putting this near the
top of their new agendas. In addition to
their fear of a supplier going bust, they
must now be concerned about whether
their bank will remain solvent.
Still other risks are becoming more
prominent, too, such as interest rate
risk, commodity risk and the changing
regulatory environment. More and more
concern is being expressed about trans-
parency, including the ability to track
payments and to communicate efectively
with banking partners. Treasurers and
their staf need greater fnancial informa-
tion, on a regional and global basis, as well
as better tools and skills to make accurate
cash forecasts.
Clients will want to play a far more
active role in their cash management, ob-
serves Charlie Corbett, Economics Editor
for the London-based fnancial monthly,
e Banker. Technology has allowed cus-
tomers more control over their fnances,
but the economic downturn has awakened
them to the need to monitor their risk
exposure and counterparty situation ever
more closely.
So what should corporate treasurers be
expecting when it comes to their banking
partners, specialist or non-bank provid-
ers?
First and foremost, when it comes to
payments, corporates need to unlock the
liquidity in their working capital and pur-
sue emciencies that will help to reduce
costs. You can no longer say a payment
is a payment is a payment, maintains
Rajesh Mehta, treasury and trade solu-
tions head for Europe, the Middle East
and Africa (EMEA) at Citi, still one of the
Corporate treasurers move
centre stage: how best to
manage cash and leverage it?
largest global banks in cash management
despite its recent re-organisation. Te
economic environment requires banks
to extend the payments value chain into
corporates fnancial supply chains . We
have to extend the emciency of payments
beyond the settlement of the transaction
into the commercial relationship itself. In
addition to supplier fnancing, he says that
procure-to-pay and electronic invoicing
are all services that can add value to a
companys payments process.
Francesco Vanni dArchiraf, Citis glo-
bal head of treasury and trade solutions,
also points out the importance of reducing
costs in a way that benefts both the com-
pany and the bank. If we can enable our
clients to reduce days sales outstanding
by :: and lengthen days payable by ::
an entirely achievable expectation we can
liberate s: trillion in cash and potentially
double our cash management business
by enabling our clients to manage their
working capital just a little bit better. His
fgures are based on the fact that of Citis
oo,ooo cash management clients around
the world, ,,ooo are the largest multi-
nationals or public sector organisations.
Using a number of banks is also a rap-
idly growing trend in cash management.
Te importance of counterparty risk
and the need for contingency is leading
to payments being split up between pro-
viders in some cases, confrms Spearing
of Deutsche Bank. Her views are shared
by Andrew Long, head of global trans-
action banking at HSBC. In truth, he
says, corporates have mostly focused on
a multi-regional strategy as they are aware
that no bank can really cover every region
properly. Te diference, he adds, is that
they are asking if more than one bank in
each region makes most sense from a risk
concentration perspective.
But aside from diversifying banking
partners, corporates may also fnd it ad-
vantageous to look more closely at SWIFT,
the global fnancial telecommunications
network, as well as at new developments
in technology. Te concept of a mono
bank, with responsibility for global cash
management, looks too risky for corporate
treasurers in the market environment of
the foreseeable future, Stphane de la
Corporates have mostly
focused on a multi-
regional strategy as
they are aware that no
bank can really cover
every region properly
Citi, still one of the largest global banks in cash
management despite its recent re-organisation.
Fouchardire, head of SWIFT develop-
ment and business at BNP Paribas, told
the international fnancial monthly, Eu-
romoney. Te alternative is a strategy that
utilises new technologies such as Swif-
Net, which enables more straightforward
business-to-bank connectivity, and a new
approach based on fexibility, modularity
and regional services.
Spearing concurs. Te need for visibil-
ity and control does not militate against
splitting up payments between diferent
providers, given current technology, she
explains. Ten years ago, it was essential
to work with one bank if emciency and
visibility were a priority. Now the same
results can be obtained even with diversi-
fcation, not least through SWIFT. Teir
communications network, she adds, al-
lows corporates to move between banks at
the fick of a switch and is likely to become
more attractive given current circum-
stances.
Corporates and companies might
also want to consider, in these relatively
straightened times, the extent to which
they can leverage their spending on cash
management, trade fnance and other
services with their partner banks, ob-
serves Euromoneys Laurence Neville.
While resilience of systems, network,
service excellence and innovation remain
important, the crisis has shown relation-
ship management and the link from trans-
action banking to the rest of the bank to
be crucial, maintains Spearing. What that
means in practice, comments Neville, is
that lending by banks is now essential to
gain cash management business.
For the largest corporates, that implies
a crucial change, observes Alex Caviezel,
head of treasury services, EMEA, at JP
Morgan. Historically, they have seen
their lending relationships separate from
cash management, because they could
access the capital markets for their fund-
ing needs. Except for short-term working
capital, he adds, they generally focussed
on getting the best deal [from a bank] for
cash management. Given the ever-growing
linkage between the two, corporations and
companies need to consider how banks
treat their clients in terms of both rela-
tionships overall and in terms of product
oferings. A bank which can devote an
individual or a team to the client, and
which operates a co-ordinated approach
has much to ofer in this new climate,
Neville points out.
Tose banks which can link com-
mercial activity, such as working capital
management, FX, risk management and
short-dated investments are able to of-
fer a holistic view to treasurers, says JP
Morgans Caviezel. Tose banks that fail
to adapt to the altered cash management
landscape will undoubtedly usher in a
future of unhappy customers, loss of busi-
ness and unwanted attention from regu-
lators, maintains Corbett. Ultimately,
those banks that pay sumcient attention to
what their clients want will succeed.
For corporates, companies and banks
operating in the GCC, the choice of how
to proceed with cash management and
trade fnance in the future will undoubt-
edly be conditional on developments in
the region as a whole and in the wider
world in general. But one thing seems
certain: just as there will be more costs,
and more dimcult choices, there will also
be new opportunities to make the most of
revenues and cash fow, as well as better
ways to ensure fnancial stability and the
reduction of risk.
Analysis
Training
SWIFT, the Society for Worldwide Interbank Financial
Telecommunications, has revolutionised the way banks and
corporations communicate with each other. In this exclusive interview
for Cash & Trade, SWIFT's Regional Head, MENA, Sido Bestani,
speaks frankly about how the global fnancial crisis has afected his
organisation and explains what measures it is taking to provide for
the needs of customers in the Middle East and North Africa.
SWIFT a communication revolution
Corporate treasurers are looking to
diversify their risk, especially given
the nancial turmoil of the past 18
months. What can they do to achieve
this?
Some of their banks are using secure
means of communications in emails or
in certain applications. But others are
using channels which are not secure,
which are not standard. Tat's where we
come in.
SWIFT provides communications
between companies and the bank in
a secure and standardised network. It
provides the means for these corporates
to get real-time availability of their
cash, of their funds, through something
which is also more secure, instead of
using email or faxes which are not really
secure. Because of this crisis, some large
corporations here in the Middle East
are looking to reduce this corporation
risk and to have better means of
communications with their banks.
Some of the most important global
banks in cash management, such as
Citicorp and RBS, have fallen on hard
times. How has this aected demand
by corporations and large companies
for global transaction banking?
What SWIFT is providing is a means
of communications which will allow
secure and more standardised ways
of communicating. So the fnancial
crisis does afect us. Our SWIFT tramc,
which is where we get our revenue, is
decreasing.
It is decreasing?
Absolutely. Growth for the past ten or :,
years has been around :o or :, a year,
but for the frst time in SWIFT's history,
because of the crisis, SWIFT tramc has
decreased. Last year it fell by , . Tis
is the frst time we have had a decrease.
So it does have an impact, but that's not
only focussed on what's going on with
Citi and RBS. It is the general fnancial
crisis.
To get back to corporate treasurers,
because of all the turmoil, obviously
they feel they have to diversify their
risk as much as possible. If, for
example, they've been depending
for their cash management or trade
nance services on one particularly
big bank, say Deutsche Bank or JP
Morgan, how can they diversify
their risk? Can SWIFT help them by
enabling them to deal with more than
one bank?
SWIFT is not in the business of saying
which corporates need to work with
which bank. Tat is their own business.
What we provide is a pipeline, a
standard and secure pipeline. Most
of the large corporations usually use
multi-banks. Tey have a relationship
with two, three, four or even :o banks.
Tat is how they diversify and reduce
their risk. What we have seen is that
you can minimise your risk by using a
pipeline which is common to all these
banks and which allows you to have
something secure. SWIFT is secure
and standardised, and this obviously
will help to avoid manual processing,
increase automation and straight-
through processing (STP), etc.
Banks using the same pipeline can add
services to their corporate customers
and also increase the automation rate,
STP, etc. In other words, it is automated
from one end to the other. STP means,
for example, that if you send a fax,
you have to process it manually, with
a human being. You have to process
the instruction manually. Whereas if
you are using a standard, if you are a
bank, and you receive a message which
is a standard, that message can be
processed by a machine, by a back-omce
application. It can do what is necessary.
Terefore you are reducing your risk.
So some of these banks can beneft by
using SWIFT as a common pipeline for
their corporate customers.
You are talking here about for the
larger corporates. As you know, in the
Middle East, aside from many large
holding companies, there are a lot
of smaller, privately-owned family
rms, as well as smaller banks. Some
of these may have a relationship with
several banks, but many may not. How
can SWIFT help these rms?
Tat's a good point. Indeed, there is a
diference between, let's say, the Western
and European market and the one in
the Middle East. But in the Middle
East, too, you still have some large
corporates for whom it makes sense
to use SWIFT for all the reasons I've
just mentioned, ie. to go for something
more secure and more standardised.
Tese large corporates, whether family
owned, or whether they are like
Aramco, RasGas, the Kuwait Petroleum
Company or Qatar Telecom, etc. may
have a relationship with local banks,
but also with international banks. For
these corporates, it makes sense to think
about SWIFT connectivity.
Today we have, more or less, :o
corporates in the Middle East which are
connected to SWIFT. Two or three years
ago we had only around fve. So the ball
is rolling. Tere is interest growing in
the region, and also for some of the local
large banks to have SWIFT as a pipeline.
You say 'the local, large banks.' Are
you talking about those which are
international like, for example, HSBC?
Or are you talking about banks like
the National Bank of Abu Dhabi or
other indigenous banks?
I'm talking about the local large ones,
banks like the Emirates National Bank
of Dubai, the National Bank of Abu
Dhabi, Emirates Bank, Qatar National
Bank, the large ones in Saudi Arabia,
like Al Rajhi bank. These are large
banks that provide services to the large
corporates. Therefore it makes sense for
them to provide the SWIFT pipeline.
What we have been doing for the past
two to three years since we opened the
omce in Dubai is to raise this awareness
among the banks, the local banks,
and then, with their help, to raise this
awareness among the large corporates.
Because the beneft is mainly for the
large corporates. Te good thing is that
Training
the ball is rolling. At the same time,
because of the fnancial crisis, some of
them are thinking about having SWIFT
as something mandatory, so that they
can reduce both their operational risk
and their overall risk.
Technology is advancing rapidly,
particularly in cash management
and trade nance. I know that SWIFT
provides software to banks which is
proprietary. What kind of technology
or software are you able to provide
specically for Middle Eastern
clients?
All the products and services which
are available at SWIFT are available
to the :o8 countries that we serve.
It is the same from one country to
another. What we mainly provide is a
secure network. Tis is why SWIFT is
known throughout the world, for the
more than 8,ooo fnancial institutions
that are connected. It is also about
the standards and the key messages.
You have :,o types of messages, or
standards, that cover payments. which
allows you to go for automation, for
increasing STP.
What type of messages?
Tese are standard messages which
can be integrated into back-omce
applications. We have three types of
messages in the payments area, in the
treasury area, in the securities area and
in the trade area. It is really broad so
that the institutions can use it. Tis is
the basis of SWIFT.
At the same time, SWIFT is trying
to provide more support to its
communities, because you need to
remember that SWIFT is a co-operative.
It is owned by the users. Tey are the
shareholders.
You are based in Belgium. And you
have more than 8,000 banks?
We have more than 8,ooo fnancial
institutions. Among these you have
banks, but you also have other fnancial
institutions like asset managers, broker-
dealers, custodians, administration, etc.
Overall, it is actually 8,8oo fnancial
institutions in :o8 countries.
You mentioned that now that you are
based in Dubai, you are looking at
how the regional market operates?
Yes. Tis is one of the reasons that we
opened the local omce. SWIFT is a
small company, with just :,ooo people
working for it. At the same time, we
are providing our service to more
than 8,ooo fnancial institutions. So
by opening local entities, we try to be
closer to these institutions, to make
them aware of what is going on in
SWIFT, and to provide them with the
right support. At the same, we give
time to making sure that they are
using or that they can beneft from
the existing SWIFT intrastructure,
that they can leverage it, perhaps by
introducing corporate connectivity,
but also through other projects that
we have in the pipeline, like workers'
remittances. Tis is something which
is on the SWIFT agenda, to provide
the community with a way to automate
these type of payments, which are
very much present in the region. We
provide also other tools, like matching
tools, like tools for the foreign exchange
marketdiferent types of tools
which might not be applicable for all
institutions, but will be for some. We
just want to make sure that they are
aware of it and that they can get the
most out of SWIFT's services.
Training
Sibcs 2009
Hcn Kcn
!4!S 5eptember
The global Iinancial Iorum
that inIluences your
business success
Sibos is the global event where you make essential
business connections.
Once a year, it brings together the financial industry to
create opportunities for individuals, organisations and the
community as a whole. lt is a unique forum for
networking, doing business and keeping in touch with
what is going on in the industry.
Facilitated and organised by SWlFT for financial
institutions, corporates, application and middleware
vendors and public institutions, it creates the stimulus for
learning, for collaborating, for developing new business,
for defining future strategies and for taking collective
action that can shape the future of our industry.
F|nd out more at www.s|bos2009.com
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Enterprise resource planning:

systems integration is the key

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