Trade Finance
Being a 'global boutique' bank, GBI's Trade Finance Division provides fast, accurate, innovative, tailor-made and country-specific financing solutions with a holistic view. Other banks in emerging and developed markets, physical commodity traders, manufacturers and producers engaged in international trade, factoring, leasing and forfaiting houses form part of our client base.
The competitive advantage of GBI lies in its commodity expertise, regional expertise, risk management expertise and its well-established relationships with the trade finance market actors. As a result, during periods of volatility, GBI successfully mitigates risks while keeping valued relationships.
In regards to global financial markets in general, and the trade finance market in particular, 2008 was a year of extreme volatility. At the end of the summer, it was apparent that the so-called decoupling of emerging markets from the advanced economies would not occur while global de-leveraging gained momentum. Secondary markets for trade related emerging market debt dried up and most commodities signaled a hard landing after a continuous surge since 2002. Winter started as early as September. Global trade and demand for funding new trade finance transactions abruptly contracted and financial markets were in their most severe turmoil since 1929. The severity of events that all subsets of the global financial system have undergone was described as 'once in a century' by Mr. Alan Greenspan, ex-chief of US Federal Reserve.
Chart-1 Transaction Volume by Product Clusters
As Chart-1 points out, closing the year 2008 with USD 6.4 billion, GBI's trade finance transaction volume decreased by 17 percent while revenues surged considerably. This is the first time since 2001, the financial crisis in Turkey, that the transaction volume plunged. Especially the second half of the year was responsible for the drop in the annual transaction volume.
During the second half of the year, we observed slowing trade, lower demand for its financing and the end of decoupling. Simultaneously we imposed necessary risk containment policies.
Volume by Products
2008 signified a return to "old fashioned" trade banking products. While documentary credit and collection products surged, structured products plummeted by more than 50 percent. Drying up of secondary market liquidity due to de-leveraging on one side and the end of decoupling on the other, reduced the lenders' appetite for structured products such as syndicated loans, funded stand-by LC's and other forfaiting products. Accordingly, GBI Trade Finance Division emphasized origination of documentary credits and collections products, evidencing its continuing support to international trade between actual importers and exporters.
Chart-2 Transaction Volume by Country of Repayment
Volume by Country of Repayment
42 percent of GBI's 2008 trade finance transaction volume has its repayment due from advanced economies such as US, EU, Japan and Switzerland. The bulk of the remainder is from Turkey, portraying GBI's traditional involvement in Turkish foreign trade. The series of events in 2008 led GBI to simultaneously apply risk containment policies. As a result, the segment of transaction volume driven by emerging countries other than Turkey; reduced by 42 percent compared to 2007.
Chart-3 Transaction Volume by Merchandise
Volume by Merchandise
In the course of 2008, GBI Trade Finance Division's commodity finance units supported the international trade of 10.6 million metric tons of commodities, only less than a 3 percent drop over that of 2007. Such tonnage was equivalent to USD 5.5 billion in value, which registered 6 percent growth over 2007 due to higher average commodity prices in the first half of 2008.
GBI's involvement in agri-business commodities such as grains, edible oils and fertilizers significantly improved over 2007 with a 46 percent growth in related transaction volume. Alloys, coal and chemicals related transaction volume also grew, whereas semi-finished steel products and steel scrap related volume contracted.
2008 has seen a rollercoaster of volatility in commodity prices. Many commodities had price hikes of more than 100 percent within the first half of the year under review, but then a sharp free fall of 50 percent from the peak values by the end of the year. The effects of such volatility were especially devastating for such buyers and the sellers, which carried large inventory positions or had weak commercial ties with their trading partners. During such extreme volatility, GBI provided valuable support and advice to its clientele.
GBI Trade Finance Division started the year 2008 with a cautious view. At the end of the year under review, we did benefit immensely as a result of our caution. We observed increasing revenues while risk containment policies have protected both our revenues and our asset quality. Old-fashioned banking gained further popularity and bilateral relationship based banking proved rewarding.
During 2008, Trade & Forfaiting Review, a well-respected publication circled in the global trade finance community, awarded GBI Trade Finance as the second best in agri-business, third best in metals and mining and the third best in Eastern Europe trade banking among all global trade finance players.
As a natural consequence of the global credit crisis, we foresee a contraction in global and regional trade in 2009. Consolidations and realignments among lenders - irrespective of their size - in the field of trade finance might take place. Increasing protectionism, unavoidable government interventions to commerce and banking and low global demand will challenge all institutions in 2009 and will test their survival abilities. On the other hand, for those resilient lenders quickly and decisively acting with conservative risk mitigation tools and policies, financing trade during such tough times would prove to be a winning strategy.
Understanding the value of continuing liquidity support for trade financing, GBI is committed to provide best value-added solutions and risk mitigation techniques to our present and future relationships.
