Standard Chartered's Karen Fawcett plugs trade factoring

2009 was a good year for Standard Chartered, something group head of transaction banking Karen Fawcett wants to repeat in 2010.
Karen Fawcett
Karen Fawcett

Standard Chartered Bank is the regional bank that can. Emboldened by its strong showing last year, and positive balance sheet over the past seven years, the institution has struck out with a new marketing campaign that makes the slightly extravagant claim that it is "Here for good".

While only future historians will be able judge the bank's assertion, Karen Fawcett, group head of transaction banking at Standard Chartered, was quite confident of the staying potential of at least its transaction banking business in a recent conversation. She attributed the 5% year-on-year decline in revenue to the "more than halving" of cash management margins, but said the 26% increase in trade finance revenues came from grabbing competitors' market share and a rise in instrument pricing.

"In the wholesale bank, we really consolidated our position," said Fawcett on last year's performance.

Now Standard Chartered is focusing on its core markets. With consumption in Europe and the US is down, and likely to remain that way for a while, the bank is leveraging its traditionally emerging market-focused presence to capture rising intra-regional flows.

"Europe and the US are not in good shape," said Fawcett. "We see a lot of [trade] activity at the Asia-end and the intra-regional flows between Asia and Africa and Africa and the Middle East coming up very nicely."

"These economies have the advantage of an emerging middle class and young populations," she continued. "All the fundamentals are right for these economies to continue growing faster. The challenge we have is the US is still a monster market; it has an economy of $14 trillion. Europe's in the range of about $5 trillion and then you've got China and India distant after that. You've still got an issue of scale."

As part of an overall revamp of its trade back-office system, Standard Chartered has updated and streamlined its offering of products and services that appeal to these typically less sophisticated buyers and sellers. Asked for a particular service the bank has improved and Fawcett speaks at length about factoring.

Factoring is a trade finance technique where a business sells invoiced receivables to a third party at a discount in return for cash. The third party, often a bank or financing company, then assumes responsibility (and risk) for collecting payment from the buyer.

"Classic factoring is something that largely disappeared from Asian markets back in 1997," said Fawcett. "If you look at factoring, it was done by finance companies and it used to be the most efficient way for local corporates to access funding and debt to expand their businesses. When the finance companies either went under or got subsumed into banks a lot of those capabilities disappeared."

In the years since the Asian crisis, factoring has been largely the realm of local banks. For example, more than 70% of Taipei-based Chinatrust Commercial Bank's trade finance revenue comes from factoring transactions for Taiwanese manufacturers. Other institutions offering the service include Malaysia's AmBank and the Bank of China.

Asked why Standard Chartered was expanding its factoring capabilities now and Fawcett said: "We believe that because of cross-border supply chains it actually should be the domain of the international banks as well".

"Clients in Asia traditionally use letters of credit to get financing. If you look at the trend over the past 10 or 20 years, the shift has been for the OECD buyers to want to use open account and not pay for the LC, which leaves a gap in the client's financing capability. So clients wanted to move to receivables services, which can be very time consuming and expensive, but if they move to a factoring arrangement on a portfolio basis it saves time and money and provides an enormous amount of liquidity. It's a very very cheap form of financing compared to taking out a big chunky bank loan."

Regional heavyweights Citi, Deutsche Bank and HSBC also offer the service.

Factoring is not the only service Standard Chartered has added or enhanced. Fawcett also spoke about the bank's achievements in renminbi trade settlement (a capability it and HSBC are currently playing a game of one-upmanship over), a new simplified Straight2Bank portal to meet the needs of small and medium-sized businesses, and the wider breadth of additional services it can offer customers. For example, it now offers customers better equities coverage following its November acquisition of Cazenove Asia.

"We have moved on all levels from being seen as very strong across three very important regions in the world to becoming a global bank that just starts in the East rather than the West," she said. And that, at least based on its advertising, is what Standard Chartered says it wants to be. 

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