Complex risk environment confronts finance industry in post-COVID world

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Interviewed By Foo Boon Ping

Senior executives and heads of transaction finance and risk management in Asia Pacific discussed cross-border cash management, trade and supply chain challenges and opportunities amid an increasingly complex risk landscape. The rise in global inflation and interest rates, precipitated largely by supply chain disruptions and shocks from COVID, a worsening geopolitical landscape and retrenchment in globalisation, has increased market uncertainties and elevated risks on multiple fronts, across country, credit, cyber, interest rate, liquidity, market, operational and political dimensions.

Sebastien Avot, Atul Jain and Marc Recker of Deutsche Bank, Adrian Ong and Ng Poh Yee of United Overseas Bank, Ashutosh Kumar of Mizuho Bank, Kai Fehr, Michael Sugirin and Pradeep Nair of Standard Chartered, Venkat ES and Parvez Aziz of Bank of America, Amit Talgeri of Axis Bank Limited, Tareq Refat Ullah Khan of BRAC Bank Limited, John TM Wong of Hang Seng Bank, Shekhar Bhandari of Kotak Mahindra Bank, Yap Kwee Hong of OCBC Bank and Nguyen Thi Quynh of Techcombank discussed the evolving dynamics of shifting global trade and supply chain flows, the future of correspondent banking amid heightened demand for speed, safety, security and transparency of cross-border payments. The important role of government-to-government collaboration to remove barriers and facilitate the digitalisation of cross-border trade and settlement. The overarching theme of incorporating ESG and sustainability factors into trade and supply chain financing operations was also on everyone’s mind.

Avot brought up how geopolitical imperatives have once again elevated regulatory compliance requirements and increased the cost of cross-border transaction processing and monitoring. Increased limits set on credit appetite of intermediary institutions have also resulted in rationalisation of key accounts and relationships.

Ong highlighted the opportunity costs of maintaining idle cash balances and how working capital advisory solutions could help businesses manage cash payments and collections effectively and provide much needed visibility across regional and global accounts.

Recker discussed how today’s cross-border payment, largely facilitated on SWIFT network, is one of the industry’s biggest assets but also the biggest problem. Common international standards for interoperability are still required to drive a revolution in cross-border payments. Wholesale settlement predicated on a common, international payment infrastructure such as blockchains or multi-CBDC (mCBDC) built across different central banks offers promise but has so far limited use-case and reach.

Ng talked about digital solutions resulting from COVID as enablers to accelerate supply chain finance but cautioned about the lack of standards, scale and data quality. Kumar observed the evolution of “just-in-time” to “just-in-case” inventory and the end of longer supply chains, pointing to ‘localisation’ and shrinking proximity between procurement and consumption activities.

The following key points were discussed:

  • Correspondent banks should have a clear understanding of regulatory requirements and trends to continue to connect clients to safe, secure and legitimate high value cross-border payments
  • Transaction banks have a great opportunity to help customers with cash and liquidity management due to inflation and higher interest rates
  • Collaboration between fintechs, financial institutions and governments is key to improving digital supply chain financing and services
  • The need for liquidity will remain erratic due to higher interest rates and tighter lending conditions.
  • Increased bifurcation and polarisation of economic and political interests will retard pace of globalisation, increase regionalisation and formation of more regional trade blocs and corridors, and settlement options that banks have to navigate customers through
  • Increased China risks and the prospect of “ringfencing” such risks arising from worse than expected economic slowdown and ripple effects of real-estate downturn to other sectors, financial services in particular.
  • A new mindset to evaluate and set risk limit to support customers, shift from traditional fixed dollar value-based limits to more flexible/variable limits based on underlying transaction value or deal size.

 

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