20 minute read
Facing the changes in Trade Finance
Subramanian Krishnamurthy Head - Global Transaction Services at National Bank of Fujairah details recent conditions and new developments that have shaped and are helping to improve the processes and efficiency of trade finance
Can you please share what the main changes that the trade finance has gone through in recent years?
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Since its inception in 1982, NBF has positioned itself as a global trade services provider in the UAE, serving as a one-stop shop to provide all import and export requirements for businesses. The bespoke services we offer clients derive from an in-depth understanding of their working capital and term financing needs. Our leadership position in the space has enabled us to stay abreast of fast-evolving developments and respond to them to better serve our clients. As an acknowledgement to our efforts on enhancing the role of business enablers NBF was awarded the “Best Trade Finance Provider” awards at the MEA Finance 2021 Awards.
Over the years, we have witnessed the trade finance industry undergo a transformational journey towards digitisation and innovation with the emergence of new technologies such as blockchain. Nevertheless, the Covid-19 pandemic remains the most impactful, yet unforeseen event that has impacted and will continue to impact stakeholders operating in trade finance.
With the pandemic taking its toll on global trade and supply chain, the priority for economic recovery is to mobilise capabilities and resources to trade flows back on track. Private and public partnerships will be critical to making this happen and working together to close any financing gaps. Offering financing support to SMEs is a key priority towards this end especially in the UAE as these businesses generate 70% of national GDP. In this regard, NBF will continue to work with corporates and SMEs to meet their needs and extend its unmatched expertise in trade finance to support the national economy.
Can you share with us NBF’s digital strategy and how the bank is progressing towards it?
Being in the UAE is an impetus to any bank or business to ensure they have a digital-focused strategy; the country and its leadership have anticipated the need to embark on the digital transformation journey ahead of many others. At NBF, the transition to further digitisation started long before the pandemic and is now accelerating, making digital the preferred choice for customers.
In 2020, we acted swiftly and invested in new products and services as we looked at increasing efficiency, helping businesses overcome Covid-19 related constraints, and broadening our customer base especially focusing on segments of the population that spend more time on digital channels.
To date, more than 80 per cent of the bank’s customers have transitioned from traditional to online banking. We have also moved towards more automation and use of robotics and smart technologies to have over 90 per cent of transactions now fully automated in specific processing areas. Despite the pandemic, we rolled out a number of products including NBF Connect, a platform designed to empower, network and help SMEs with their business challenges; eDirham Instant, a digital payment method that allows customers to securely pay for governmental fees and services; NBF klip, a robust, secure and interoperable digital cash platform that is designed to transition the UAE to a truly cashless society.
More recently, NBF participated for the launch of UAE Trade Connect, a nationwide blockchain platform, co-created by Etisalat Digital. This platform aims at supporting financial institutions combat fraud and duplication and to tackle key issues in the trade finance space.
Subramanian Krishnamurthy Head - Global Transaction Services at National Bank of Fujairah
New technologies in banking, as well as unprecedented global events continue to transform the financial sector, and the traditional banking landscape is set to rapidly change in the next few years. Companies and financial institutions are navigating a fast-paced and shifting technological environment with one goal in mind: to enhance the customer experience. In an ever-evolving climate, maintaining convenience, efficiency, and security is imperative for a successful customer experience. As a dedicated financial partner, we are trying to progress with our digital transformation efforts offering experience-led solutions that aim to provide customers with a seamless experience.
Do you foresee Blockchain taking a greater role in trade finance and supply chain payments?
This is already happening; a Blockchainbased infrastructure will drive efficiencies, reduce cost base and open up new revenue opportunities. As a new way to secure the transfer of value, blockchain technology promises to increase collaboration, automation and oversight in trade finance transactions, all being benefits to both banks and customers.
In trade finance, banks facilitate international trade by providing financing to buyers and sellers. However, as the trade war intensifies between the US and countries such as China, banks are looking to reduce some of the risks they take on through technological innovations. Banks are reducing their reliance on antiquated manual processes and digitizing key trade documents, like Letters of Credit (LCs), to reduce cost and improve efficiency. Others are looking to replace the process altogether with longer term applications of Distributed Ledger Technologies (DLTs).
Taking trade finance into the new era holds the promise of improved speed and processes; this is where Blockchain fits in. The reasons behind the adoption of Blockchain technology in trade finance is owed to the existing challenges of today’s processes ranging from manual of essential documents to assist in enforcement and AML activities
contract creation to usage of multiple platforms leading high chances of fraud. Below is the list of main benefits that Blockchain technology brings to the trading ecosystem:
Real-time review: Financial documents linked and accessible through Blockchain are reviewed and approved in real-time, reducing the time it takes to initiate shipment
Transparent factoring: Invoices accessed on Blockchain provide a real-time and transparent view into subsequent short-term financing
Disintermediation: Banks facilitating trade finance through Blockchain do not require a trusted intermediary to
How has UAE Trade Connect helped NBF tackle key issues in the trade finance space?
UAE Trade Connect (UTC) is a unique platform that enhances collaboration between all UAE banks and the supply chain industry on combatting fraud and duplication, among other issues in the trade finance space.
UTC’s initial phase focuses on addressing the risks of multiple financing amongst banks and invoice frauds which, if not mitigated, can eventually lead to the weakening of a bank’s balance sheet
and in turn, dampen the overall mood of financing to SMEs in the economy. UTC is expected to facilitate increased lending to SMEs to strengthen the UAE’s positioning as a central trading hub in the region.
As an award-winning bank in trade finance, and a leader in providing trade finance to the UAE business community, NBF is one of the banks participating in UTC which we consider an enabler of growth in the space, and an innovative solution to problems industry stakeholders have historically grappled with.
UTC has helped us in avoiding duplicate financing and identification of fraudulent invoices thus helping us to support genuine business to be financed. With the help of the UTC platform, we are also able to check invoices with different grades of efficiencies. This means that Corporates and SMEs can complete their transactions quicker while enjoying an elevated customer experience.
assume risk, eliminating the need for correspondent banks Reduced counterparty risk: Bills of lading are tracked through Blockchain, eliminating the potential for doublespending and potential frauds
Decentralised contract execution:
As contract terms are met, status is updated on Blockchain in real-time, reducing the time and headcount required to monitor the delivery of goods Proof of ownership: The title available within Blockchain provides transparency into the location and ownership of the goods due to Data immutability benefits of DLT
Automated settlement and reduced
transaction fees: Contract terms executed via Smart Contract eliminate the need for correspondent banks and additional transaction fees Regulatory transparency: Regulators are provided with a real-time view
On Course for Success
Discussing their performance in 2021 and looking ahead to the coming year, Hisham Alrayes CEO of GFH Financial Group tells MEA Finance that despite the challenges of identifying of the best opportunities, their strategy of actively investing for growth has successfully yielded the positive results they planned for this year, thus finding themselves well placed to take advantage of emerging trends and openings in 2022.
Emerging from 2020’s restrictions, how would you define GFH’s financial performance in 2021?
Our financial performance in 2021 has been robust coming off the back of the pandemic year. It goes without saying that 2020 was a year like no other. We have not seen anything like 2020 in the last two decades we have been operating in Bahrain. The crisis whipped up extremely strong economic headwinds causing some major shifts in the investment landscape, not just here in the GCC but worldwide. Markets saw share prices plummet and investment professionals turned to safeguarding their assets. The economic fallout from the pandemic weighed heavily on a number of our peers in the GCC and the impact of Covid-19 is still being felt within the region’s investor community.
In spite of the subsequent economic downturn, GFH managed to produce stronger-than-average results in 2020. In fact, the group generated a net profit attributable to shareholders of more than $45 million in 2020, a reduction of around 30% compared to 2019 but a very strong result nevertheless, all things considered. And we made more than $208 million in new investments. We did not simply weather the storm, we continued to make strides across the business and delivered another solid dividend for our shareholders even in our toughest ever year. We are grateful to have achieved the continuity of our operations and delivery of highquality services for our clients and shareholders. We are also grateful for the market’s continued confidence in our group’s financial position despite 2020’s economic turmoil.
Needless to say, we entered 2021 in a strong position with a lot of confidence in our model, diversification approach and operational resilience. We also entered with a very promising pipeline of opportunities which we have since converted into transactions that were welcomed by our investors across the
Hisham Alrayes CEO of GFH Financial Group
region. The first nine months of 2021 have been marked by substantial growth in income and profits. The group delivered a net profit attributable to shareholders of more than $60 million over the first three quarters of 2021, an increase of over 160% compared to the same period in 2020. We’re pleased with these results and GFH’s continued ability to deliver across its diversified lines of business and geographies where we invest.
Rejuvenations and reorganisations shaped the industry landscape in 2021. What strategies have GFH been most active in pursuing in this year?
Despite an ever-changing market, we have maintained a sharp focus on pursuing the tried and tested model which proved so resilient. We have continued to favour future-proof investments in defensive sectors and are confident this strategy will continue to deliver strong value and returns for shareholders regardless of shifts in the industry landscape.
That said, we are equally opportunistic and always working to tweak and sharpen our strategies to ensure they thrive regardless of external pressures. The group has been able to restructure the balance sheet of Khaleeji Commercial Bank, a majority owned subsidiary of GFH, with the objective of ensuring the bank contributes to recurring growth revenues in the future. This particular strategy is already bearing fruit in terms of our bottom line, with commercial banking income now accounting for roughly 20% of the total income of the group. We expect this contribution to increase as we complete the acquisition of Khaleeji Commercial Bank.
In 2021, we have also continued to build on our global portfolio of incomeyielding real estate assets capable of delivering solid returns for the group and our investors. We maximised our value creation potential by tapping into a
wider range of asset classes, sectors, and markets, pursuing opportunities to expand our portfolio both in our home markets in the GCC and beyond. For example, we have made several acquisitions in the US, UK, and Europe.
At the closing of 2020, we acquired Roebuck Asset Management, a UK and European logistics and business space focused real estate asset manager, which has seen us gain strategic access to prime deal flow within the European market in 2021, and leverage opportunities arising from the fast-growing logistics real estate sector. More recently, we have made several acquisitions in high-growth sectors in strategic geographies in the US.
We acquired two multifamily residential sites in prime locations in Las Vegas for $200 million, invested in a $2 billion portfolio of logistics assets leased to Amazon, and most recently acquired a $150 million portfolio of medical offices spread across seven states in the US. These investments reflect our strategy for seeking out stable, high-growth opportunities across a diverse range of segments within real estate.
What have been your main challenges and most notable successes in 2021?
GFH has a legacy of continually evolving in the face of adverse market conditions and our strategy of business line diversification is a vital component of our resilience. Nevertheless, we have had to stand up to and solve challenges this year. One of the main challenges we have faced this year has been identifying the best opportunities for our investors as the world opens again. The impact of Covid has significantly impacted markets, industries, and the investment landscape. As a result, new windows of opportunity have opened. There has been shift in the focus from the old school of business to new age business and it is a challenge finding opportunities within this space that will interest our investors. I believe that we have overcome this challenge. Our team of expert investment professionals estate portfolio is an area where we are delivering significant value by supporting and improving assets. Our acquisition of a 70% stake in British International School of Tunis in Tunisia in 2021 will support plans to establish another branch of BIST in Tunis Bay as the iconic project continues to progress with the aim of providing a fully integrated and world-class commercial, residential and lifestyle offering.
has a finger on the pulse of markets around the world and has demonstrated an ability to quickly and proactively seek out new opportunities as they arise. This was exemplified in our move to acquire a portfolio of medical offices in the US. This particular sector in the US has emerged as one of the most promising areas of investment. The medical offices market is positioned for steady growth following a sizeable shift towards outpatient care to reduce pressure on overstretched hospital systems. The new round of acquisitions fits well into our strategy to build a portfolio of stabilised assets driven by solid long-term fundamentals and operating growth.
Despite the challenges, we have celebrated some notable successes and highlights aside from the various awards bestowed upon us. Towards the end of 2020 and during the whole of 2021, we have continually introduced opportunities for our investors in the global and US technology space through Global Tech Funds. This has given GFH and our shareholders access to market-leading, multi-billion-dollar US and global tech growth companies, in partnership with a top-tier growth and technology focused asset manager. We have also collaborated with top tier asset managers like Schroders during 2021 and with leading logistics companies like Amazon and FedEx and presented these opportunities to our investors.
We hope our investors can see we are not only targeting solid returns, but we are also investing with impact, aiming to add value to local communities. Our real
Has 2021 been a better year than you were expecting?
This year has been in line with the roadmap laid out by the board after a period of uncertainty. While globally, we are still feeling the effects of the pandemic, our performance for the first nine months of 2021 underscores the robust nature of our strategy and the important positions we have built in resilient and defensive sectors and businesses around the world. We entered 2021 with a clear plan and confidence in our strategic model. And as planned, we have continued to expand our presence in the global logistics real estate sector, bringing new and exciting deals to our investors and generating strong placement income.
While we are of course pleased and proud of our performance for the first nine months of the year, I cannot say we are particularly surprised by the outcome of our strategy. Our solid increases in income and profits reflect a well-diversified business model, effective management of investments and steady income generation capabilities, which has always been a key objective for the group. During the year, we also benefited from
a strong demand from our investors for deals we have closed in the US real estate market in well performing segments such as logistics and residential. We have also made gains from improving performance in our commercial banking activities.
What are the target markets for GFH in 2022?
Moving forward, growth remains a central theme for GFH in all areas of our business. We have entered the final month of the year with a sharp focus on investments and relationships that will allow us to accelerate growth in our portfolios in key sectors including logistics, technology and education, among others. In 2022, our eye for investments in strategic geographies will remain as sharp as ever. We will continue to hunt opportunities in areas including the GCC, US, UK and Europe within markets positioned for steady growth. We look forward to announcing further strategic transactions and new partnerships with a view towards creating even greater value for our investors and shareholders, within the region and beyond. 2022 will be defined by a diversification of our services and assets in line with our recession-proof approach to the investment landscape.
What trends will define regional banking and financial market activity in 2022?
National economic diversification strategies and growing business confidence and interest from foreign investors in the region have set the GCC’s banking sector on a strong growth trajectory. Going into 2022, digitalisation and Fourth Industrial Revolution technologies will remain key themes in the region’s banking and financial market. In fact, the GCC is regarded as one of the world’s highest-potential fintech ecosystems. Banking customers here are ready to start using advanced fintech solutions and there is significant growth potential for areas such as Open Banking. Bahrain in particular is a leader in fintech in the GCC and GFH is well placed here to take advantage of emerging trends and opportunities in the banking and financial market in 2022.
What do you think brought GFH its success in winning The Best Islamic Investment Bank and The Best Sukuk Deal of the year at the 2021 MEA Finance Awards?
We believe our success at the MEA Finance Awards was down to a number of factors. First and foremost, our clients’ trust and continued partnership are paramount to our group’s success. We have also benefitted from our commitment to offering clients a personalised private banking experience tailored to their individual needs and goals. That is in addition to our continued efforts to diversify our investments into new markets and sectors, which allows us to identify and offer our clients investment opportunities that are downturn-resistant and provide attractive returns.
Furthermore, strengthened market confidence in GFH was exemplified by our successful completion of a $500 million sukuk issuance in June 2020 to regional and international investors alike, demonstrating resounding trust in our performance and future prospects. This was also a sound approval of our commitment to our robust strategy. We are fast becoming recognised as the region’s top Islamic investment bank, and we are constantly working to develop the Shariacompliant services and products we offer. On top of all this, reputable international credit rating agencies have reaffirmed the group’s Long-and Short-Term Issuer Default Ratings, taking into account the management’s strategic objective of reshaping GFH’s business model towards more stable and recurring revenue sources. We are very pleased that we are increasingly receiving recognition from rating agencies, industry peers, clients and the broader investment community, not just in the GCC region, but internationally.
Celebrating 10 years of innovative Islamic investment with a Swiss touch
Arnaud Leclercq is Partner Holding Privé and Head of New Markets at Swiss private bank Lombard Odier, which has been serving clients in the region for more than fifty years. The area is now one of the fastest growing and most strategically important markets for the Group and here, Arnaud discusses the evolution of the Islamic investment solutions franchise Lombard Odier Assayil, which will celebrate its 10th anniversary in 2022
The Shariah offering at Lombard Odier was created almost ten years ago. How has it evolved?
We have been offering Islamic investment solutions, including our Shariah discretionary mandate, under the umbrella brand of Lombard Odier Assayil since 2012. Lombard Odier continues to develop and grow its Shariah mandates, supported by our eminent Shariah board and the scholars of Amanie Advisors, who certified us as Shariah-compliant in 2018. We have won awards for our Shariah expertise on numerous occasions, like recently at the WealthBriefing MENA awards, or last year at the PWM/The Banker Awards. We feel very honoured by this recognition, but are not afraid to rethink our approach and remain open to new ideas and collaborations in the region.
Lombard Odier has entered into strategic partnerships, like the one with SEDCO Capital recently. How did that come about?
Lombard Odier has actually already
been working with SEDCO Capital for many years. In 2021 we decided to go a step further, as the investment solutions expertise of our two companies is aligned with both the principles of Islamic finance and sustainability. One notable result is our pioneering sustainable
equity investment strategy, which is not only Shariah-compliant but also adapted to European UCITS standards.
How is investor demand for this kind of offering changing?
Shariah-compliant sustainable investing is still in its early stages in the region. But for the Arab world, where Islamic investments are already well established, socially responsible and sustainable opportunities are a natural fit. Besides, there has been a change in investors’ mindset, with a belief now that sustainable investing will be crucial to unlocking future returns.
What has contributed most to your growth and success? What makes you stand out?
Our roots are Swiss, and reflect the experience, stability and security that we offer. But we have served clients in the Middle East for over half a century, so we have a deep understanding of their specific needs. Our approach is bespoke and we build our offering around our clients’ needs; that’s a key factor which makes us standout. Our discretionary Shariah mandate, for example, is not a ‘one-size-fitsall’ fund, like many others in the market – it’s a fully customisable solution. Depending on the individual client’s suitability, risk profile and investment preferences, it can be built using any mixture of sukuks, equities and short-term instruments, Shariah-compliant funds and exchange-
traded products, as well as investments in areas such as real estate, gold and structured products.
Arnaud Leclercq, Partner Holding Privé and Head of New Markets, Lombard Odier and Soumaya Hissoussi, Senior Vice President, Lombard Odier ADGM Branch
a branch in Abu Dhabi in 2019, to serve our local clients better with bespoke onshore wealth solutions. In fact, we were the first Swiss private bank to open in the prestigious Abu Dhabi Global Market. We are committed to building
a strong footprint in the Middle East, and the UAE is one of its largest wealth markets. Having opened our office in Dubai in 2007, our Abu Dhabi branch is testament to our faith in the growth and economic stability of the region and our confidence in the Emirates’ future as a key business location and wealth generator.
How has business been over the past few months? How do you envisage the future in the UAE?
Assets from the UAE are growing at a double-digit rate. That’s why we opened
