Torsten Erdmann Representative Office Moscow Moscow, 16 April 2013
Agenda
1. Commerzbanks Trade Services
2. Challenges to Global Trade
3. Regulatory Issues - Overview & Impact on Trade
4. Outlook
Torsten Erdmann Representative Office Moscow 16 April 2013
Commerzbank Global Trade Services at a Glance:
Ability to handle trade transactions
in 46 currencies
16 international entities
specialized in trade finance
COBADEFFDOC is central entry point
to reach beneficiaries all over the world
Market leader* in Germany
for SME (the Mittelstand)
A Partner You Can Trust. Worldwide.
* in relationship to the L/Cs issued abroad in favor of German exporters
Torsten Erdmann Representative Office Moscow 16 April 2013
Pillars of Commerzbank Trade Services
Relationship
Financial
Institutions
Department
Staff
FI
Correspondents
Corporate
Clients
Trade Service
Units
Germany &
International
> 350
> 5.000
58.300
50
1,350 documentary and transaction services staff (world wide)
Torsten Erdmann Representative Office Moscow 16 April 2013
This is Trade Services for us!
Documentary
Collection
Import collection
Export collection
Letter of Credit Advising
Global advising
Letter of Credit Confirmation
Open confirmation
Silent confirmation
Letter of Credit Negotiation
Taking up of documents
Letter of Credit Reimbursement
Payment of a
reimbursement claim
Irrevocable reimbursement
undertaking
Torsten Erdmann Representative Office Moscow 16 April 2013
Guarantee
Global advising
Issuance of direct guarantee
Issuance / confirmation of
indirect guarantee
Provision of individual wording
Supply Chain
Financing
Export pre-financing
LC post-shipment financing
Reimbursement financing
Import pre-financing
Bank Payment Obligation
(BPO)
Buyers Credit
Loan to bank for onlending
to buyer
Loan to buyer guaranteed
by bank
Forfaiting
Discounting of promissory note
Discounting of bankers
acceptance
Purchase of a claim without
recourse
International Branch Network
Germany / worldwide
COBADEFF
New York
COBAUS3XXXX
Amsterdam
COBANL2XXXX
London
COBAGB2XXXX
Brussels
COBABEBXXXX
Madrid
COBAESMXXXX
Paris
COBAFRPXXXX
Zurich
COBACHZHXXX
Moscow
COBARUMMXXX
Prague
COBACZPXXXX
Bratislava
COBASKBXXXX
Budapest
COBAHUHXXXX
Vienna
COBAATWXXXX
Milan
COBAITMMXXX
Beijing
COBACNBJXXX
Tianjin
COBACNBXXXX
Tokyo
COBAJPJXXXX
Shanghai
COBACNSXXXX
Hong Kong
COBAHKHXXXX
Singapore
COBASGSXXXX
Dubai
COBAAEADXXX
Worldwide coverage out of
Head Office Frankfurt
Local handling through
dedicated operating centres
9
Torsten Erdmann Representative Office Moscow 16 April 2013
Local presence global reach
Leading Position in Trade Services
Western Europe & North America
Commercial Payments
Treasury Clearing
LCs
LC Reimbursements
No 3
No 3
Leading provider
No 1
Latin America
Commercial Payments
Treasury Clearing
LCs
LC Reimbursements
CEE & CIS
Commercial Payments
Treasury Clearing
LCs
LC Reimbursements
Asia Pacific
No 2
No 2
No 1
No 1
Middle East
No 1
No 1
No 1 European Bank
No 1
Commercial Payments
Treasury Clearing
LCs
LC Reimbursements
Commercial Payments
Treasury Clearing
LCs
LC Reimbursements
No 2
No 3
No 3 European Bank
No 1
Africa
No 2
No 1
No 3
No 2
Number of payments processed
Number of LCs handled
Number of bank relationships
Number of account relationships
No 3
No 3
No 1
No 1
Source: various FImetrix studies 2009-2010; market shares in selected products excl. use of own bank / Africa figures based on SWIFT Watch reports and own estimates respectively
Torsten Erdmann Representative Office Moscow 16 April 2013
Commerzbanks LC Involvement in Russia
MT700 sent from Russia to:
2011
2012
919
1082
2.245
2.001
40,94%
54,07%
MT700 sent from Russia to:
2011
2012
Commerzbank Worldwide
1.093
1.197
10.631
12.662
10,28%
9,5%
Commerzbank Germany
Germany
Market Share of Commerzbank in Germany
Worldwide
Market Share of Commerzbank Worldwide
Source: SWIFTWatch MT700
Torsten Erdmann Representative Office Moscow 16 April 2013
Agenda
1. Commerzbanks Trade Services
2. Challenges to Global Trade
3. Regulatory Issues - Overview & Impact on Trade
4. Outlook
Torsten Erdmann Representative Office Moscow 16 April 2013
World-wide L/C via SWIFT in 2012: 4,66 million
North America
sent
130.519
received 223.631
Europe (Euro Zone)
sent 403.764
received 484.148
Europe (Non Euro Zone)
sent 226.255
received 246.056
Middle East
Africa
sent
342.618
received 63.473
Central & Latin America
sent
132.023
received 56.249
sent 358.198
received 181.248
Asia-Pacific
sent 3.069.653
received 3.408.125
Source: SWIFTWatch 2012
Torsten Erdmann Representative Office Moscow 16 April 2013
Russia: L/C traffic via SWIFT MT700 in 2012
sent from Russia 12.662 - received in Russia 8.101
North America
sent
received
510
88
Europe (Non Euro Zone)
sent 2.954
received 4.472
Europe (EuroZone)
sent 4.908
received 880
Middle East
Africa
sent
received
32
40
Central & Latin America
sent 35
received 86
sent 37
received 571
Asia-Pacific
sent 4.186
received 1.964
Source: SWIFTWatch
Torsten Erdmann Representative Office Moscow 16 April 2013
10
Russias Top 15 Export Partner Countries in 2012
MT700 received in Russia
2012
Uzbekistan
1.195
Belarus
1.119
India
833
Switzerland
740
Russia
541
China
488
Iran
426
Rep. of Korea
271
Cyprus
255
Kazakhstan
216
Netherlands
182
France
149
Ukraine
124
United Kingdom
98
Vietnam
94
Source: SWIFTWatch MT700
Torsten Erdmann Representative Office Moscow 16 April 2013
11
Russias Top 15 Import Partner Countries in 2012
MT700 sent from Russia
2012
China
2.027
Germany
2.001
Italy
811
Switzerland
771
United Kingdom
560
Russia
483
Hong Kong
475
USA
432
South Korea
427
France
302
Austria
286
India
241
Belgium & Netherlands
205
Finnland
171
Spain
162
Source: SWIFTWatch MT700
Torsten Erdmann Representative Office Moscow 16 April 2013
12
Worldwide trade via L/Cs (1948 2012)
22
20
18
16
14
LCs
90%
12
10
8
1950
6
4
2
0
1948
1956
1964
1972
1980
1988
1996
2004
Source: World Trade Organization; Celent LLC
Torsten Erdmann Representative Office Moscow 16 April 2013
13
All Doom and Gloom?
Famous Last Words
Trade finance has become more difficult to obtain. The fact that the creditworthiness
of several European countries is now seen as lower than some emerging market countries
has rendered export credit guarantees from those European countries less desirable
Hung Tran, deputy managing director of the Institute of International Finance (IIF) 11/2011
Low growth and high unemployment [in advanced countries] provides the perfect setting
for the growth of protectionism
Angel Gurra OECD Secretary General, B20 Seoul 11/11.
You either get out of [trade finance], or you consider increasing costs. If theres a clear third
alternative, Im not aware of it, Donna K. Alexander, CEO of BAFT-IFSA, Sibos 2011
[Basel III rules] are anti-American! Jamie Dimon, CEO of JPM
Torsten Erdmann Representative Office Moscow 16 April 2013
14
Evolution of a Crisis: From Real Estate to Sovereign Debt
2007
mainly US and UK, Subprime
Crisis
Real Estate Crisis
Capital Shortage
2008-2009
Crisis of Banking System
Loss of Confidence
Liquidity Crisis
Political Changes
2010-20??
Sovereign Debt Crisis
Torsten Erdmann Representative Office Moscow 16 April 2013
Refinancing Problems for
peripheral Euro Countries
15
2008 Global Financial Crisis
Multiple Reasons & Complex Interaction
New
Business Models
Originate to Distribute
Innovative
Financial Products
(Credit Derivatives)
High
Liquidity
Low Rates of Return
Search for Yield
Banks took
Center Stage
Mistakes in (Risk-)
Management
Excessive
Leverage
Asset Valuation
Bubbles
Intransparent
Risk Transfer
Torsten Erdmann Representative Office Moscow 16 April 2013
Complex
Risk Assessment
16
Global Trade Volumes of Goods and Services
World trade volumes
EM 2012: Exports + 5,9%
Imports + 8,1%
CIS: + 4,9%
yoy, %
15
12
9
6
3
0
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
-3
-6
-9
-12
Source: IMF WEO
Torsten Erdmann Representative Office Moscow 16 April 2013
17
Europe Sovereign Debt (selected countries)
2012 Gov. Debt Forecast
(Percentage of GDP) and Tendency 2013
2012 Government Deficit Forecast
(Percentage of GDP) and Tendency 2013
180
0,0
160
-1,0
140
Germany
-2,0
Italy
120
-3,0
100
-4,0
80
Denmark
60
-5,0
40
-6,0
20
Fr
an
ce
G
er
m
an
y
Be
lg
iu
m
De
nm
ar
k
Ire
la
nd
Po
rtu
ga
l
Sp
ai
n
ly
Ita
re
ec
e
-8,0
-9,0
France
Portugal
Spain
-7,0
Belgium
Greece
Ireland
Data source: European Commission
Torsten Erdmann Representative Office Moscow 16 April 2013
18
Remedies or Placebos?
Goals for Reduction of Budget Deficit (as %-age of BIP)
4
3
2
1
0
-1
GR (6)
PT (6)
target for (x) months
IR (6)
ES (6)
target for the whole year
IT (6)
FR (5)
achieved
Sources: Global Insight, Commerzbank Research
Torsten Erdmann Representative Office Moscow 16 April 2013
19
A Long Term View:
Torsten Erdmann Representative Office Moscow 16 April 2013
20
Agenda
1. Commerzbanks Trade Services
2. Challanges to Global Trade
3. Regulatory Issues Overview & Impact on Trade
4. Outlook
Torsten Erdmann Representative Office Moscow 16 April 2013
21
Regulatory Landscape
G-20
2009: Global Plan for Recovery and Reform
Global Forums
IMF, BIS, Financial Stability Board
Regional Authorities
EBA, European Commission, ESMA
National Regulators
Central Banks, local FSA
Torsten Erdmann Representative Office Moscow 16 April 2013
22
Basel III Basics
Regulators objective
Considerable qualitative and
quantitative increase of banks
capital buffer to be robust for future
crises (also to prevent false risk
incentives for investors)
Significant increase of core capital from 2% to 4,5%
Maintenance of capital by implementing an additional buffer of 2,5%
core capital (Capital Conservation Buffer)
If applicable, definition of additional capital requirements for
systemically relevant banks (2,5%)
Mitigation of cyclical effects in
stress scenarios
Possible additional burden by implementing an anti-cyclical capital
buffer of up to max. 2,5% of RWAs
Penalty for OTC derivatives
Implementation of a robust and simplified Leverage Ratio (3%)
Disregarding credit conversion factors and OBS-items
Leverage
Decoupling from possible
calculating and methodological
errors
Liquidity
Uncoupling of financial
institutions among each other and
from the real economy
Raised capital adequacy and notable obligations for banks dealings
among each other Asset Value Correlation (AVC) + 25%
Minimum liquidity ratios for short term liquidity hedging as well as
for long term congruent refinancing
Capital
Results
1) Should an institute fall under a core captial ratio of 7%, its not allowed to pay out any dividends and the loss is assigned to lower ranked bondholders
Torsten Erdmann Representative Office Moscow 16 April 2013
23
Basel III & Trade Finance
Facts
Consequences
Good
Waiver of one-year maturity floor
(AIRB approach)
will reduce capital requirements
for banks engaged in trade finance
Good
Waiver of sovereign floor
(standardised approach)
Lowers CCF for banks that confirm LC
from unrated issuers in EM
Fair
20% CCF confirmed
(under risk-based measure )
none
Bad
100% CCF for calculating leverage ratio
Increase in cost (but not significant)
Torsten Erdmann Representative Office Moscow 16 April 2013
24
Basel III: Leverage Ratio
Initially set at 3% (Tier 1 capital to total exposure)
Trade LCs 100% notional rather than EAD of 20%.
Performance Bonds / SBLCs 100% notional rather than EAD of 50%
ECA covered loans at accounting value!
Observation Period, migration to Pilar I in January 2018
CRD IV/CRR recognizes that medium/low risk and medium risk off-balance sheet
trade finance instruments should carry a 20% and 50% Credit Conversion Factor (CCF)
Torsten Erdmann Representative Office Moscow 16 April 2013
25
Basel II vs. Basel III: Effects of higher CCF
Assumption
CCF up from 20% to 100% - , costs rise 5 times?
Fact
Example: Customer with 100% risk weight, 1 year LC
risk capital for banks under Basel II is 20% x 8%
(CCF x Minimum Capital Ratio)
= 1.6% of the LC's face value
assuming cost of capital 10% (typical)
bankss cost of capital for extending this credit
= 1.6% x 10% = 0.16% (of LC face value)
Basel III leverage ratio of 3%* high quality capital on exposure amount
I.e. cost of capital to support an LC = 0.3% of face value (100% CCF!)
(on top of LC fees which can range from 1% to 5% of face value!)
Torsten Erdmann Representative Office Moscow 16 April 2013
26
ICC Trade Finance Register
Pilot Phase
Portfolio level data provided by 9 leading international banks
5,22 million trade transactions, US$ 2,5 trillion worth of trade deals
Findings (focus on 2008-2010)
Average tenor: 147 days (all products), 80 days (OBS products)
Import L/Cs: default 0.077 percent, loss 0.007 percent
Export confirmed LCs: default 0.09 percent, loss 0.03 percent
Standbys and guarantees: default 0.013 percent, loss 0.0007percent
Import loans corporate risk, default 0.06 percent, loss 0.07 percent
Import loans bank risk, default 0.09 percent, loss 0.05 percent
Export loans corporate risk, default 0.29 percent, loss 0.017 percent
Export loans bank risk, default 0.17 percent, loss 0.01 percent
Trade gets paid!
Torsten Erdmann Representative Office Moscow 16 April 2013
27
Agenda
1. Commerzbanks Trade Services
2. Challanges to Global Trade
3. Regulatory Issues - Overview & Impact on Trade
4. Outlook
Torsten Erdmann Representative Office Moscow 16 April 2013
28
Nominal World GDP (Billion USD, current prices)
100
90
80
70
60
50
40
30
20
10
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
Source: IMF, World Economic Outlook DB, Sept. 2011
Torsten Erdmann Representative Office Moscow 16 April 2013
29
New Growth Leaders:
Largest Economies by Incremental Nominal GDP from 2007 to 2012 (billion USD)
China
4.497
1.624
Japan
US
1.581
1.083
Brazil
Russia
722
Australia
640
India
626
496
Indonesia
Germany
150
Source: IMF
Torsten Erdmann Representative Office Moscow 16 April 2013
30
Bank Payment Obligation (BPO)
Irrevocable payment undertaking by buyers bank to pay to sellers bank after successful
data matching
Contract
Goods / Documents
bilateral contract
Data
(1) Baseline
Information
Seller
Information
Data
bilateral contract
Buyer
(1) Baseline
Buyers Bank
(3) Match reports
TSU
(2) Data sets
Sellers Bank
(3) Match reports
(4) Bank Payment Obligation
(5) Payment (outside TSU)
Torsten Erdmann Representative Office Moscow 16 April 2013
31
Challenge: IT Interface Corporate Bank TSU
Bilateral Contracts
Backoffice-System
Individual data transfer solutions
or SCF-Plattform
Seller
Individual data transfer solutions
or SCF-Plattform
Bilateral Contracts
Buyer
Backoffice-System
Buyers
Sellers
Bank
Bank
TSU
via SWIFT
Interaction based on SWIFT Rulebook + Service Description
Torsten Erdmann Representative Office Moscow 16 April 2013
32
Securitization of Trade Assets
Requirements
sufficient granularity of portfolios
AIRB-Certification for risik evaluation of
tranches by SFA (or external rating)
Due Diligence
Replenishment (usually monthly)
Regulatory issue: High Cost Protection
Economics
Trade
Finance
Portfolio
Super Senior
Tranche
SPV
Guarantee
Fee
100% RWA relief at single loan level
retained tanches still produce RWA
Overall cost depends on structure of the
transaction and actual investor intererest
Note
Proceeds
Note
Proceeds
First Pledge
Torsten Erdmann Representative Office Moscow 16 April 2013
Interest &
Principal
Issuer
Guarantee
Interest &
Principal of
the Collateral
Cash
Account
Mezzanine
Tranche
First Loss
33
Influence on Trade: Short Term
International trade growing strongly again, albeit at a lower rate
Liquidity and risk taking capacity will be the major drivers
Risk premiums are remaining stable / slightly increasing
Growing role of Trade Risk Distribution
Sovereign risk will remain a significant issue shifting focus on advanced markets
Torsten Erdmann Representative Office Moscow 16 April 2013
34
Trade: medium & long term prospects
World trade is expected to grow faster than GDP
IMF: trade may double in 13 years, and triple in 20 years
Emerging markets trade / south-south fastest growing trade segment
Protectionist pressures may threaten trade growth
Torsten Erdmann Representative Office Moscow 16 April 2013
35
Torsten Erdmann
Head of Representative Office Moscow
Telephone:
Fax:
E-mail:
+7 (495) / 797 48 48
+7 (495) / 797 48 49
torsten.erdmann@commerzbank.com
Torsten Erdmann Representative Office Moscow Moscow, 16 April 2013
Head Office
Kaiserplatz
Frankfurt am Main, Frankfurt
Postal Address
Kadashevskaya nab. 14/2
119017 Moscow, Russia
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Torsten Erdmann Representative Office Moscow 16 April 2013
37
