Ulf-Peter Noetzel, Deutsche Bank’s new Head of Trade Finance Financial Institutions, talks about partnerships with multinational development banks, food security in Sub-Saharan Africa, and end-to-end visibility of trade transactions
Cooperation between financial institutions in processing of trade finance transactions forms a vital part of the cross-border trade ecosystem. Trade corridors have diversified over the past couple of decades and it was in response to demand from other banks for assistance with their outbound documentary transactions that Deutsche Bank has developed a range of supporting trade services for financial institutions.
This is targeted at where the support has the greatest impact and follows the trade flows in response to borrower demand filtered by risk appetite and availability of guarantees by multilateral development banks (MDBs) in challenging geographies.
Deutsche Bank’s TFFI strategy
Ulf Peter Noetzel took up global responsibility for Deutsche Bank’s trade finance relationship with other financial institutions when Peter Knodt retired in October 2017. Ulf-Peter was formerly Managing Director of Deutsche Bank’s TFFI operations in the Middle East and Africa.
“I am in full respect for what Peter has achieved over so many years as Head of TFFI,” he reflects. “He was highly instrumental in positioning Deutsche Bank in the FI market as a trade finance service provider and was extremely well known in the industry. Now we are building on this and we will ensure that Deutsche
Bank remains the No. 1 bank for TFFI business,” adds Noetzel.
Noetzel brings a powerful armoury of experience to his new role. This includes cash management, trade finance and relationship management based in Singapore and Frankfurt, as well as covering geographies as diverse as Scandinavia and the Middle East. “Somehow I was linked to most of the markets”, he explains.
Correspondent banking climate
He takes on the role at a time when correspondent banking links have been reducing – Deutsche Bank is by no means alone in withdrawing from relationships that are unprofitable to sustain.
“We had to look at our customer base from a regulatory point of view. You can end up carrying on with dormant relationships for decades, thus although it was a tough exercise it was also an opportunity.”
Preferred FI partners are first tier banks that are “well positioned in their home markets for trade finance business”. However, an important part of the relationship strategy is also to work closely with select second tier banks in attractive emerging markets (such as the Middle East, Africa and Latin America). “These are the banks for which our credit risk department should have good appetite for,” says Noetzel.
But without the guarantees and support from supranationals such as the IFC, ADB and the EBRD, much of the medium-term and long-term documentary business would not get done – see Figure 1 for the scale of these programmes.
Noetzel makes the point that collaboration with supranationals such as the World Bank (umbrella institution of the IFC), the ADB and the EBRD is crucial in the tougher markets – not just for ticket size but tenor as well. “If we have medium- and long-term (MLT) business, it is easier to do that business with the EBRD or IFC cover than without it,” he explains. In addition, market analysis of letters of credit in the medium term financing market has indicated a rise in demand. The data also shows that it becomes more relevant to do two and three-year LCs which were less demanded in the past. Also, says Noetzel, “it is easier for us to do imports for capital goods requiring longer tenors”.
“The IFC is really instrumental for us in our African and Latin businesses”, says Noetzel (in 2016 the IFC supported US$1.9bn in trade via its banking network in sub-Saharan Africa).
One important trend is the addition of value in-country, and the enlargement of domestic supply chains to support extractive industries, manufacturing, retail and exports of agricultural products. Financiers of African imports therefore need to be able to move away from short-term deals and be more willing to take African payment risk – which is where the supranationals come in.
However, while the EBRD and the IFC cover a lot of issuing banks in emerging economies, on-boarding many of these second-tier banks is getting prohibitive in terms of operational cost.
This is an issue that cannot, says Noetzel, be resolved by the commercial banks in isolation. “Deutsche Bank is a strong supporter of the SWIFT KYC Registry but what we need from those supranational institutions is for them to talk to the World Bank, the Fed and regulators and address this issue with them directly and see if there is an opportunity to use an LEI (legal entity identifier) or something like that. There is no short-term solution in sight but in order to meet the demand that is undoubtedly there it needs to be escalated,” he notes.
Eye on Africa – and feeding Angola
Since Noetzel’s ‘Eye on Africa’ interview with TFR in 2013, Deutsche Bank’s African business has taken off significantly. “We are in a position to provide trade solutions to our corporate customers in more countries in a better and more structured way than we did five years ago – we hear this from our customers,” he reports.
Next to Nigeria where the bank has run a representative office for more than 40 years another outstanding example is Angola. Ever since the end of the Angolan civil war in 2002, early action and dialogue with ministries, banks and regulators ensured that Deutsche Bank was able to do trade business with the country very early.
A roundtable report on Angola's financial sector from the Global Economic Governance Programme reported in 2015 that banking sector assets have grown from US$3bn in 2003 to around US$60bn in 2013. However, notes the report, as is typical of oil dependent economies, the banking sector remains highly concentrated. While there are more than 20 commercial banks operating in the country, the top five banks control around 78% of total bank assets.
Certainly there are opportunities for banks such as Deutsche Bank that have had a long relationship with this Lusaphone country. Thanks to its rich soils and reliable rainfalls, Angola was once almost self-sufficient in terms of food security (apart from wheat) and was a significant agricultural and minerals exporter. But the discovery of petroleum reserves off the coast of Cabinda in 1955 fuelled the subsequent economic boom and oil dependency and this, together with the aftermath of the Civil War, destroyed the agriculture infrastructure.
But Angola is working hard to reduce its dependency on oil exports and re-build its former well-developed agri-business. This push for diversity brings opportunities for banks such as Deutsche Bank. Current TFFI deals (in collaboration with the Structured Export Finance team) include the financing of a yoghurt production plant and imports of machinery.
Outlook for TFFI
New technology is, says Noetzel a significant shaper of where the TFFI portfolio is heading. Contrary to industry talk, SWIFT’s Bank Payment Obligation (BPO, a standardised irrevocable payment instruction that uses ISO 20022 data structures) is still alive “based on genuine corporate demand from both the supplier and buyer side”.
With trade finance’s paper-based processes undergoing much called-for digitalisation, the BPO is enjoying something like a mini-resurrection. But also other industry developments around supply chain financing and platform-based technologies are quite exciting and will definitely change the game for both corporates and banks alike. “What we try to achieve is to be fully automated end-to-end and to increase efficiencies to large extent. These are the sorts of things I want to develop and drive,” concludes Noetzel. “And the letter of credit will continue to maintain its relevance in the trade finance market – for sure.”
Note this article is based on an interview with Ulf-Peter Noetzel, Global Head of Trade Finance Financial Institutions at Deutsche Bank
Head of Trade Finance FI
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