Habib Bank is PakistanÆs largest privately owned bank with a balance sheet of over $10 billion. It has raised a $55 million trade advance to support its corporate clientsÆ international trade activities. The bank was able to refinance a portfolio of trade assets it was holding on its books through JPMorgan. JPMorgan took part of the risk ($5 million), while the IFC guaranteed the remaining $50 million.
The funded trade advance forms part of a global trade finance programme (GTFP) launched by the IFC around three years ago. The programme supports trade flows worldwide by providing guarantees to cover trade instruments issued by banks in emerging markets.
ôMost of the trade finance products covered by the programme have been confirmed letters of credit issued by participating issuing banks,ö says Priyamvada Singh, IFC's regional head for trade, Asia and the Middle East. ôWith this particular structure with JPMorgan we have been able to provide risk coverage on a portfolio of trade [not traded] assets that an issuing bank was looking to refinance. So through this, we've offered non-traditional trade risk mitigation.ö
The funded trade advance provides cost-effective pre-export and post-import financing to banks. It combines several trade transactions into a single trade facility and provides an innovative approach to raising funds through risk-mitigated avenues.
In this instance it is expected to help the Pakistani bank expand its financing options as trade flows in the country continue to rise.
"Potential clients are located in countries where liquidity is scarce, such as China and India,ö says Yanti Agustin, executive director, head of trade for Southeast Asia and South Asia at JPMorgan Treasury Services. ôWe are trying to ease the liquidity crisis and to help financing trade of the banks. Due to weakening economies and reducing inflation, there is a lot of liquidity being taken out of the market. In countries like Vietnam for example, it is very difficult for local banks to raise US dollars at the moment, so our solution will benefit them."
The IFC is a member of the World Bank Group; it fosters sustainable economic growth in developing countries by financing private sector investment, mobilising private capital in local and international financial markets, and providing advisory and risk mitigation services to businesses and governments.
JPMorgan Treasury Services provides payment, collection, trade finance solutions, liquidity and investment management to corporations, financial services institutions and middle market companies.