An Interview with George Nast, Standard Chartered Bank
During the course of 2008 and 2009, how did the financial crisis affect your clients’ business (domestic/international)?
For our clients, not surprisingly, the biggest concern was liquidity and risk management. As funding dried up during the crisis, clients focused on conserving liquidity and worked closely with Standard Chartered, which remained ‘open for business’ and helped improve on already long-term relationships.
In terms of risk, the crisis drove home the seriousness of counterparty risk management – both bank counterparty and commercial counterparty risk. In the early days of the crisis, we benefited from a significant flight to quality as clients shifted their cash to banks that were considered more stable, and we continue to enjoy a strong base of client liquidity. Clients also became more cautious about the credit risk of their counterparties and concerned about the viability of their supply chains. There were many examples of large companies running into problems with their manufacturing operations because a supplier could not deliver parts due to a lack of financing. As such, we issued more letters of credit in 2009 than in the previous year - an interesting development given that global trade volumes decreased over the same period.
What is the impact today?
I think the lessons learnt in the last two years are still ripe in client’s minds, but there is also more optimism, particularly within our footprint in Asia, Africa, and the Middle East. Whilst there has been a reprieve in the liquidity constraints given the myriad government fiscal stimuli, there is still much to be cautious about. The record levels of corporate cash globally illustrate that. So clients are being more careful about dipping into cash reserves and are paying more attention as to how they manage their working capital, and they want a high level of transparency on every part of their working capital cycle. We also see many Western multinationals wanting to move surpluses from key growth markets of Asia to fund borrowings in Europe and the US.
Within our footprint, clients’ perspectives seem to have improved with a particular focus on taking advantage of the faster growth within these regions. The key trade corridors of Asia-Africa, Africa-Middle East and Asia-Middle East remained buoyant in 2008, with trade flows within these corridors growing at rates of up to 38% annually. We are working with these clients to build international working capital solutions to take advantage of current opportunities. For example, buyer finance has been popular in order to extend credit terms to expanding Asian manufacturers while still managing working capital.