You are on page 1of 2

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 has raised its outlook for year after better than expected
Berlin Wall were opened for good, followed demand from the automotive and engineering sectors.
by the signing of the Treaty of Unification Germany’s trade finance bankers have played their part.
on 3 October 1990. Since then, 3 October has been In fact, they have been rushed off their feet. “The German
celebrated in Germany as Tag der Deutschen Einheit – banks are doing fantastic business,” says Silja Calac, Head
German Unity Day. of Trade Risk Management at Unicredit in Munich.
It has been a long haul, but the German government “Our forfaiting volume has grown. It began with the
has succeeded in carrying through a major, long-term vision crisis. The years 2008 and 2009 were good for us. First,
for the future of a united Germany. income increased considerably because the pricing went
The same, perhaps, can be said of their economic much higher and now the pricing is going down but the
management. Despite bearing the pains of integration and, volumes are over-compensating for this decline,” says Calac.
more recently, the financial crisis, bank rescues and being She adds: “Our volumes have continued to grow
called upon to play the lead role in bailing out the Greek in 2010. In the first half of the year, bank guaranteed
economy, Germany has been working hard at its recovery forfaiting increased much more compared to the first six
that has been largely, though not entirely, export-led. months of 2009. Small and medium-sized enterprises
The result: in the second quarter of this year the economy (SMEs) in Germany were hit by the crisis and feel a
grew 2.2%, the fastest quarterly rise since reunification. And greater need to make their businesses safer and get cash
as The Economist reported on 13 August, it is China, among immediately, and forfaiting can provide that.”
other emerging markets, that is buying a lot of German Fortunately, many German corporates have a long
products. For example, sales of Mercedes cars to China familiarity with forfaiting, which therefore forms part of
tripled in the year to July and ThyssenKrupp, the steelmaker, their financial planning.

10 TFR OCTOBER 2010


Volume and profits our customers and to new technological possibilities,”
Former IFA board member and senior specialist in she continues, “supply chain finance structures through
trade finance at Commerzbank in Frankfurt, Waltraud electronic platforms are such a variation of forfaiting.
Raderschall, agrees. “I don’t think that any of us can However, since the beginning of this year we have
complain about the volume and profits in the business. I seen growing competition from ABS structures for our
wouldn’t say that it is booming but we can see any amount supply chain finance products. As this activity had been
of business, any time of the day.” very strongly deleveraged following the financial crisis,
She goes on to describe the state of the market: “From securitisation teams are now looking for new and relatively
the larger firms there is a huge request for supplier credits safe assets. They seem to find them in trade finance,
down to the smaller SMEs. Then there are the government offering structures to the bigger corporates whereby they
programmes with the German export credit agency (ECA) buy up all of their trade related assets, put them in a conduit
providing plenty of insured possibilities. There has also and by this method offer corporates cheaper funding.”
been a change in the policy of the private risk insurance Meanwhile, Raderschall says that banks are trying to
companies. The self-retention portions have often improved, learn the lessons of the crisis, though some things have been
depending on the risk covered. Then there are the risk adjusted. “There is confidence here. In the old days a client
limits within the banks to cover political and commercial would just show you the deal. They wouldn’t consider any
risk. Combine all of these and we are at a very interesting other alternative; they would just do it. But now people shop
moment because everything is emerging at the same time.” around and they are met with different policies, different
Supporting the export-led recovery has not been all plain possibilities. That is why we say that there is an increase, but
sailing for German trade financiers however. “Trade finance also change, in the way business is being done.”
is essential, even for SME business,” says Bernd Sooth, Vice
President of Financial Institutions Trade and Commodity “I don’t think that any of us can complain
Finance at IPEX Bank in Frankfurt, “but there is a gap
about the volume and profits in the business. I
between the potential of the market and the willingness
among the banks to provide support,” says Sooth. wouldn’t say that it is booming but we can see
He adds: “Businesses need more from the banks, but any amount of business, any time of the day.”
they can’t provide all the services that customers need. This WALTRAUD RADERSCHALL, COMMERZBANK
is due to the risk policies of the banks due to the fact that
there have been huge mergers and much consolidation Looking to the future, Calac concludes: “I think German
within the banking sector…. That is a problem for the industry has a good time ahead of it. There is strong
SMEs that are looking for new partners in trade finance technical knowledge and excellence that goes into German
business because they prefer to work with German banks exports. Germany has benefited from increased investment
rather than to seek out partners in other countries.” in heavy equipment by overseas customers after a reduction
Stephan Schneider, who heads structured export in investment in various markets during the crisis… We will
finance at BHF Bank in Frankfurt, notes that there are continue to expand our trade finance activities to support
currently discussions ongoing in Berlin to try to alleviate exports and imports. We hope regulators will appreciate the
the problems faced by SMEs. One proposal, for example, is importance of trade finance for the German economy and
that insurers and ECAs could improve insurance provisions will accept the argument for preferred capital allocation rules
for small companies’ trade debts, which would enable them for trade finance, which is jeopardized by the new regulatory
to more easily discount them with banks that do not have environment of Basel II and III.”
banking lines in place for such small firms. Sooth agrees: “For the future I think there will be
The consolidation of the banking market and the growth, but I think it will be tight.”
stringent controls on lines and limits has created space for For the time being, there is plenty of business to
other players to enter the market – not just smaller, non- go around and the traditional trade finance banks can
bank forfaiting houses, but also firms keen to structure celebrate the country’s 20th anniversary and its strong
asset-backed securitisations (ABS). “We see new products export-led economic performance. Longer term they have
which are competing, but which are not really different to grapple with the consequences of Basel III and come to
from forfaiting. Since I would call forfaiting a technique to terms with stringent profitability criteria, but that will be
liquidate illiquid assets, such new products are variations another story. ‰
of forfaiting. ECA-covered supplier finance, electronic
platforms and non-guaranteed supply chain finance are all Richard Willsher is a financial journalist and trainer,
part of the ‘German way of forfaiting’,” says Calac. perhaps best known for the seminars that he conducts
“Forfaiting has evolved a lot over the last few years with the IFA. He can be contacted by emailing
adapting to the more sophisticated requirements of rdw@richardwillsher.com

www.tfreview.com 11