Navigating an increasingly regulated and globalised market
by Alfredo Bresciani, Head of Trade Finance International Sales, UniCredit
Barriers to trade are falling worldwide – most notably in China, where the RMB is becoming widely used among exporters for the first time. Also the regulatory context has deeply changed and a new raft of regulations has come into place after the 2008 banking crisis, mainly focusing on liquidity coverage ratios as well as on the enhancement of RWA requirements. Together, this increasingly globalised and regulated market environment has generated both new challenges and opportunities for global banks such as UniCredit and their corporate clients.
With the rise of many emerging markets – especially in Asia – how are corporates and banks responding to the changing payments landscape?
Most significantly, payments to emerging markets are increasingly in local currencies – 18% of external Chinese trade was settled in RMB last year, which is an astonishing leap from the 2% RMB utilisation in 2010. This trend is also evident in other currencies, such as the Thai Baht, which is generating revolutionary changes in the payments landscape.
Corporates will generally look to their local relationship banks to make payments in foreign currencies, although these smaller banks would probably revert to us and rely on “nostro” accounts for the execution of such payments. This duplication of activities would certainly increase the overall cost of the transaction. Meanwhile, some leading global banks are generating combined offerings. For instance, an online client-instructed interface that can generate simultaneous payment and currency conversion instructions is a great benefit to their clients.
Such trends could force many companies towards global banks despite the loss of relationship this may entail, although collaboration between local and major banks could avoid such a fate. Partnerships between local and major banks can help banks reduce their costs (outsourcing the technology and execution costs), increase efficiency and thus enhancing the overall service level provided to the client.
UniCredit has launched for instance PayFX an online platform that allows banks to offer clients foreign currency payments (in 25 euro/currency pairs), while also gaining a revenue stream from the FX rate (offered as a profit share with UniCredit).
Along with increasing collaboration with other banks, has the new market environment changed how UniCredit interacts with customers?
One of the implications of the new market environment is that banks need to change the way they work with their customers. While building sustainable relationships with customers has always been central to our strategy at UniCredit, new regulations and new customer demands have led to some important new requirements.
Firstly, Basel III is creating new obligations for banks to hold liquidity coverage ratios that are resulting in some activities becoming more attractive than others. While UniCredit is one of the most stable banks in Europe – in the first half of 2014 our fully-loaded Basel 3 leverage ratio stood at 4.7% – holistic relationships with customers that comprise a variety of complementary activities are becoming more important to us and other banks as a result of Basel III regulation.
Secondly, customer demands are changing in response to the need of balancing geographic expansion, on the one hand, with limitation of counterparty credit risks, on the other. No longer are treasurers seeking a single, global transaction bank. Rather, they are looking for long-term relationships with trusted partners that can support their needs in particular markets or with key operational and financial requirements.