TRADE FINANCE - Banks have evolved along with changing market conditions

THERE IS a basic principle underlying trade, according to Karl Sieber, product manager at Absa International Banking.
This is that those who supply goods and services are entitled to receive payment – and those who make payment for goods and services are entitled to free and unencumbered ownership.
“In international trade,” Sieber told FTW, “this rather simple notion of exchange becomes more complicated and risky by the introduction of foreign exchange as a payment mechanism; by the existence of different cultures in international markets; and by the enforcement of certain legal, statutory and regulatory controls necessary for the movement of goods across international borders and between foreign buyers and suppliers.”
In our modern society technological progress has transformed the world into a compact global village, he added.
“It has ensured that people need to adapt their traditional ways, and it has created a global international trading culture where it has become imperative to be globally competitive rather than conducting trade in isolated pockets.” Concurrently, international banking has also had to adapt.
As Sieber described it, banks have had to evolve their business from offering traditional balance sheet-driven finance products, to offering solutions-driven finance packages in order to facilitate international trade transactions and to grow business.
“In this,” he said, “international trade could be defined as a continuum that starts with very elementary, off-the-shelf and conventional type products (such as travellers' cheques, letters of credit and export negotiations) – and progresses to more complex and unconventional structures such as managed back-to-back transactions, unmatched securitised order transactions and collaterally-managed trade and commodity finance transactions.”