Published: October 01, 2011
Central & Eastern Europe (CEE) is a region characterised by its potential and opportunity. Steady growth and a commitment to developing strong international trading relationships both in other parts of Europe and beyond, as well as building domestic markets, are set to propel CEE countries to a strong position on the world stage. This article describes how KBC developed in its Central European home markets (Czech Republic, Slovakia, Hungary and Poland) a strong trade finance franchise by combining local business units on the one hand, operating close to their customer to respond swiftly to customer needs and local market dynamics, and by global efficiency on the other hand, mainly in the field of IT and country and bank risk.
In comparison with other regions in which banks in the KBC Group are active, Central & Eastern Europe is a large market in population terms, and has strong domestic as well as international business potential. The four CEE countries where KBC is offering its trade finance services have a combined volume of exports above 400bn USD and imports of above 500bn USD: this is comparable to a country like Italy and significantly higher than the flows of Belgium (KBC’s home base).
We can offer a personalised approach based on in-depth local and international knowledge.
Although CEE is often considered as one homogeneous market, it is definitely not. Also in trade the differences are significant: while the Czech Republic remains a very export-driven market with its strong tradition of ‘big export projects’ mainly to Russia and CIS, Poland is less export-focused, has a growing import and its economy was the one who survived the global financial crisis as one of the best; Hungary and Slovakia on the other hand typically combine a very important number of SMEs with a number of multinational companies attracted by the advantageous investment environment. Needless to say a ‘one size fits all’ approach would hardly work in these economies.
One of the cornerstones of KBC’s trade finance strategy is the business unit model. Each local country or market in CEE is serviced by business units combining front- and back-office services: the close co-operation and daily interaction between ‘sales’ and ‘processing’ is essential. Each customer is serviced by his dedicated sales officer and assigned controller or document checker. This is based on our strong belief that our customers want their trade financing bank to be more than simply a transaction processor and provider of credit.
We have built up an expertise base within the trade finance units of our CEE banks (˜CSOB in Czech Republic and Slovakia, K&H in Hungary and Kredyt Bank in Poland) so that our customers can access advisory as well as transactional services, with a focus on offering advice and solutions that meet their needs directly and effectively. By organising this close to our customers we can offer a personalised approach based on in-depth local and international knowledge, and a strong appreciation of each customer’s business.
In a business that often appears largely commoditised, KBC differentiates itself with its strong focus on operational quality; for most of the customers a fast and faultless execution of their trade transactions is the key buying factor. ˜CSOB, K&H and Kredyt Bank have translated the strategy of best in class operational quality into a ‘crystal clear’ offer to all its customers. With this offer our CEE business units commit themselves to service level agreements to all customers with regard to speed and quality of execution; this commitment includes also a penalty to be paid by the bank in case the service level is not met (e.g., documents under export-L/C which would not be checked within two days [instead of the five days allowed by UCP600] are checked free of charge).
It’s evident that best in class operational quality can only be delivered to the customer by focusing on operationally excellent processes, which are standardised across the trade finance business units of the group and continuously improved.
By combining business units operating close to their customers and offering them ‘crystal clear’ products, KBC together with its CEE daughter banks has a unique position in the market and is one of the only banks which neither outsources, offshores nor centralises its trade finance services. This unique position has been recognised by the market too, with five Global Finance awards (Best Trade Finance Provider) in three CEE countries over the last three years.[[[PAGE]]]
Centralisation is only relevant when it increases efficiency. One of the examples in trade finance is country and bank risk: all CEE customers benefit from KBC’s centralised Financial Institutions department which acts as the centre of competence for country and bank information, monitors country and bank limits and ensures a fast decision-making process for day-to-day trade transactions.
KBC is actively exploring innovative solutions in the open account area and working capital solutions.
Another example of where centralisation adds value to CEE customers is ICT. ˜CSOB, K&H and Kredyt Bank offer their customers the KBC internet-based front end tool Flexims; this tool allows customers with one push on the button to manage their guarantees, letters of credit and documentary collections, to follow up the status of each transaction and obtain different kinds of reporting. Just a few years after the introduction of Flexims, the automation rate of import letters of credit in several of our CEE banks exceeds 80%, which proves that Flexims meets the need of its customers.
Meanwhile KBC is rolling-out its new state of the art back-office system SmarTrade in ˜CSOB, K&H and Kredyt Bank to process even more efficiently collections, guarantees and letters of credit.
Looking forward, it is not clear how the balance between open account and trade transactions will shift, but however economic conditions recover globally, it seems likely that companies’ view of counterparty risk has changed permanently. Consequently, traditional trade instruments are likely to have an ongoing role, even though open account will continue to grow. That is why KBC is actively exploring innovative solutions in the open account area and working capital solutions.
There are other dynamics too that will affect trade in and out of CEE, and more widely, such as the continuing growth of Asia as a trading region, and the potential for RMB to become a major trading currency. The markets for international trade are therefore changing fast; however, the core tenets of risk, liquidity and facilitating efficient trade remain at the forefront. In this environment, KBC together with its CEE daughter banks is committed to anticipating and meeting its customers’ needs and providing the automation, service quality and expertise that will allow them to achieve their commercial objectives.
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