StanChart bets on transaction banking as trade flows shift east

Standard Chartered plans to expand its transaction banking business to capture global trade flows that are increasingly shifting east, a senior executive said. The bank, which makes about four-fifths of its operating profit in Asia and the Middle East, aims to develop operations in countries such as Iraq, Mozambique and Myanmar as part of expansion plans for 2013, Karen Fawcett, its global head of transaction banking business, told Reuters.

Large global banks are turning their focus to transaction banking business - which mainly involves cash management services, facilitating trade finance and providing securities processing and agency services - to counter increased competition and volatile revenues in other businesses such as investment banking. JP Morgan Chase plans to beef up its transaction banking services in Africa, its head for the region said last year. Standard Chartered's transaction business currently accounts for about 35-40 per cent of its wholesale banking client revenues and generated income of $3.67 billion in 2012, a gain of 13 per cent.

"Our transaction banking business is constantly evolving. We are expanding our capabilities and coverage and constantly trying to fill the gaps across our network in Asia, Africa and the Middle East," Fawcett said in an interview in Dubai. Fawcett expects trade flows between emerging market countries in Asia, Middle East and Africa to increase, boosting demand for services such as cash management and trade finance. The bank expects emerging markets to account for 40 per cent of global trade by 2030 from around 18 per cent currently. In 1990, emerging markets accounted for 7 percent of global trade. Trade between the Middle East and Asia has grown 700 per cent between 2000 and 2010, Fawcett said.

Annual trade between China and the United Arab Emirates has expanded sixteenfold since 2002 to $40.4 billion, according to Chinese official data.

"Corporates are increasingly valuing reliable relationships with banks that can advise them of the challenges and opportunities as growth shifts east," Fawcett added.

A dominant theme among companies is increasing sophistication in using cash management techniques, she said, adding that large corporates were reducing cash on their balance sheets and looking at ways to use it better.

The Middle East's growing trade links with Asia, especially China, is expected to boost the use of the Chinese yuan to settle trades. About 13 per cent of Chinese trade globally is denominated in yuan and that number is projected to increase to 20 per cent by 2015, Fawcett said. "The writing is on the wall. The renminbi meets a number of conditions for a reserve currency. What people are now doing is getting ready for it."

Gulf Arab countries have lagged many other parts of Asia in using the yuan because their oil exports to China are denominated in US dollars and most of their currencies are pegged to the dollar.

"The UAE has great potential to lead the Middle East and North Africa as a regional hub for the offshore renminbi trade," Fawcett said.