THE ART OF FORFAITING
Powerhaus
Berlin may have been the venue for this year’s annual IFA Conference, but Germany has
even bigger matters to celebrate. RICHARD WILLSHER speaks to German bankers about
the country’s spectacular export-led growth and the role of trade finance.
O
n 9 November 1989, the checkpoints along the
Berlin Wall were opened for good, followed
by the signing of the Treaty of Unification
on 3 October 1990. Since then, 3 October has been
celebrated in Germany as Tag der Deutschen Einheit –
German Unity Day.
It has been a long haul, but the German government
has succeeded in carrying through a major, long-term vision
for the future of a united Germany.
The same, perhaps, can be said of their economic
management. Despite bearing the pains of integration and,
more recently, the financial crisis, bank rescues and being
called upon to play the lead role in bailing out the Greek
economy, Germany has been working hard at its recovery
that has been largely, though not entirely, export-led.
The result: in the second quarter of this year the economy
grew 2.2%, the fastest quarterly rise since reunification. And
as The Economist reported on 13 August, it is China, among
other emerging markets, that is buying a lot of German
products. For example, sales of Mercedes cars to China
tripled in the year to July and ThyssenKrupp, the steelmaker,
10 TFR OCTOBER 2010
has raised its outlook for year after better than expected
demand from the automotive and engineering sectors.
Germany’s trade finance bankers have played their part.
In fact, they have been rushed off their feet. “The German
banks are doing fantastic business,” says Silja Calac, Head
of Trade Risk Management at Unicredit in Munich.
“Our forfaiting volume has grown. It began with the
crisis. The years 2008 and 2009 were good for us. First,
income increased considerably because the pricing went
much higher and now the pricing is going down but the
volumes are over-compensating for this decline,” says Calac.
She adds: “Our volumes have continued to grow
in 2010. In the first half of the year, bank guaranteed
forfaiting increased much more compared to the first six
months of 2009. Small and medium-sized enterprises
(SMEs) in Germany were hit by the crisis and feel a
greater need to make their businesses safer and get cash
immediately, and forfaiting can provide that.”
Fortunately, many German corporates have a long
familiarity with forfaiting, which therefore forms part of
their financial planning.
Volume and profits
Former IFA board member and senior specialist in
trade finance at Commerzbank in Frankfurt, Waltraud
Raderschall, agrees. “I don’t think that any of us can
complain about the volume and profits in the business. I
wouldn’t say that it is booming but we can see any amount
of business, any time of the day.”
She goes on to describe the state of the market: “From
the larger firms there is a huge request for supplier credits
down to the smaller SMEs. Then there are the government
programmes with the German export credit agency (ECA)
providing plenty of insured possibilities. There has also
been a change in the policy of the private risk insurance
companies. The self-retention portions have often improved,
depending on the risk covered. Then there are the risk
limits within the banks to cover political and commercial
risk. Combine all of these and we are at a very interesting
moment because everything is emerging at the same time.”
Supporting the export-led recovery has not been all plain
sailing for German trade financiers however. “Trade finance
is essential, even for SME business,” says Bernd Sooth, Vice
President of Financial Institutions Trade and Commodity
Finance at IPEX Bank in Frankfurt, “but there is a gap
between the potential of the market and the willingness
among the banks to provide support,” says Sooth.
He adds: “Businesses need more from the banks, but
they can’t provide all the services that customers need. This
is due to the risk policies of the banks due to the fact that
there have been huge mergers and much consolidation
within the banking sector…. That is a problem for the
SMEs that are looking for new partners in trade finance
business because they prefer to work with German banks
rather than to seek out partners in other countries.”
Stephan Schneider, who heads structured export
finance at BHF Bank in Frankfurt, notes that there are
currently discussions ongoing in Berlin to try to alleviate
the problems faced by SMEs. One proposal, for example, is
that insurers and ECAs could improve insurance provisions
for small companies’ trade debts, which would enable them
to more easily discount them with banks that do not have
banking lines in place for such small firms.
The consolidation of the banking market and the
stringent controls on lines and limits has created space for
other players to enter the market – not just smaller, non-
bank forfaiting houses, but also firms keen to structure
asset-backed securitisations (ABS). “We see new products
which are competing, but which are not really different
from forfaiting. Since I would call forfaiting a technique to
liquidate illiquid assets, such new products are variations
of forfaiting. ECA-covered supplier finance, electronic
platforms and non-guaranteed supply chain finance are all
part of the ‘German way of forfaiting’,” says Calac.
“Forfaiting has evolved a lot over the last few years
adapting to the more sophisticated requirements of
our customers and to new technological possibilities,”
she continues, “supply chain finance structures through
electronic platforms are such a variation of forfaiting.
However, since the beginning of this year we have
seen growing competition from ABS structures for our
supply chain finance products. As this activity had been
very strongly deleveraged following the financial crisis,
securitisation teams are now looking for new and relatively
safe assets. They seem to find them in trade finance,
offering structures to the bigger corporates whereby they
buy up all of their trade related assets, put them in a conduit
and by this method offer corporates cheaper funding.”
Meanwhile, Raderschall says that banks are trying to
learn the lessons of the crisis, though some things have been
adjusted. “There is confidence here. In the old days a client
would just show you the deal. They wouldn’t consider any
other alternative; they would just do it. But now people shop
around and they are met with different policies, different
possibilities. That is why we say that there is an increase, but
also change, in the way business is being done.”
“I don’t think that any of us can complain
about the volume and profits in the business. I
wouldn’t say that it is booming but we can see
any amount of business, any time of the day.”
WALTRAUD RADERSCHALL, COMMERZBANK
Looking to the future, Calac concludes: “I think German
industry has a good time ahead of it. There is strong
technical knowledge and excellence that goes into German
exports. Germany has benefited from increased investment
in heavy equipment by overseas customers after a reduction
in investment in various markets during the crisis… We will
continue to expand our trade finance activities to support
exports and imports. We hope regulators will appreciate the
importance of trade finance for the German economy and
will accept the argument for preferred capital allocation rules
for trade finance, which is jeopardized by the new regulatory
environment of Basel II and III.”
Sooth agrees: “For the future I think there will be
growth, but I think it will be tight.”
For the time being, there is plenty of business to
go around and the traditional trade finance banks can
celebrate the country’s 20th anniversary and its strong
export-led economic performance. Longer term they have
to grapple with the consequences of Basel III and come to
terms with stringent profitability criteria, but that will be
another story. ‰
Richard Willsher is a financial journalist and trainer,
perhaps best known for the seminars that he conducts
with the IFA. He can be contacted by emailing
rdw@richardwillsher.com
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