Diversify sources of US$ funding
Most of the international trade financing is linked to USD, i.e. either the underlying goods or commodities are being priced in USD or the country’s local currency is pegged to USD (e.g. Indian Rupees or UAE Dirhams, etc.).
Thus, banks need to ensure that they have access to low priced USD funding on a continuous basis, to be competitive in the international trade finance business.
In the normal course of business, customer deposits from retail and institutional clients play a significant role for banks liabilities positions. In addition, a number of banks are dependent upon the local wholesale market for raising their liabilities as well. However, most of these liabilities are usually in the currency where these banks are located.
In order to raise USD funding, banks primarily use two routes, i.e. some banks issue commercial paper as one of the channels for shorter-end USD funding, and the other being that banks are swapping their Euro, GBP, Yen, CHF, etc. deposits into USD.
Pinnacle Trade Finance focuses on understanding banks’ overall liquidity position, identifying gaps and finding new opportunities for USD funding for their trade finance business as follows:
1. Identifying different lenders to diversify its sources
2. Explore institutional investors, as alternate lenders for USD funding
3. Help optimise pricing and lower costs
4. Simple documentation and execution