New opportunities opened up by large-scale, multilateral deals such as the impending Trans-Pacific Partnership (TPP) are likely to boost competition in Australia’s trade finance stakes, according to a biannual review by major market analysts.
The East & Partners (E&P) study notes that, to successfully penetrate new markets, CFOs are increasingly searching for trade finance providers that offer innovative supply-chain management facilities, plus greater liquidity support.
In the past year, the review says, competition between trade finance providers has already reached fever pitch, led by market-share leaders ANZ and HSBC.
Meanwhile, CBA, Citi and Westpac have also achieved significant market-share growth in key sectors, and across multiple segments.
Customer churn – both current and planned – has climbed steeply, and so has competitive pitching. Indeed, each of those activities has reached its highest level since E&P began its annual review of Australian trade finance in February 2004.
The proportion of Australia’s larger, institutional firms that said they were likely to change their primary trade finance providers in the coming months has almost doubled since February 2012 to 32%.
That rapid acceleration has been ascribed to the effects that pricing competitiveness and convenient, digital e-trade solutions have exerted upon the market.
Middle-market churn intentions have remained steady at 34%, while one in four SMEs is considering switching banks entirely, reflecting higher wallet share and a lower willingness to settle on multibank solutions for trade finance needs.
More than half (55%) of the institutional group are aware that freer trade, as embodied in multilateral deals, will reduce tariffs, lower barriers to entry in offshore markets and improve the ability of foreign trade finance providers to work with Australian firms.
Only 11% of the institutional group are unsure how free-trade agreements (FTAs) will affect them. However, that jumps to 52% within the SME bracket.
E&P head of markets analysis Martin Smith said: “Despite the federal government’s AU$10m push to promote the benefits of FTAs signed with China, Japan and Korea, the great majority of SMEs are unaware how they can harness the benefits – or, indeed, what the benefits specifically are.”
However, he pointed out: “Small-business owners arguably have the most to gain from reduced trading barriers brought about by the TPP, the China-Australia Free Trade Agreement (ChAFTA) and even a purported FTA with the European Union.”
Smith stressed: “Relatively well capitalised and experienced institutional enterprises exhibit a strong understanding of the benefits associated with FTAs, and are well prepared to take advantage.
“Interestingly, twice as many large corporates expect their trade finance costs to fall as a result of bilateral free-trade agreements, in comparison to small businesses.”
He added: “Despite higher volumes, revenues will remain under pressure as long as importers and exporters remain less price sensitive.
“There is a clear incentive for Australian, international and non-bank trade finance providers to explicitly support FTA benefits, address key service factors and implement effective e-tr