Risk in Trade Finance & Trade Finance Products

• Understand why trade finance is generally low risk for credit losses – IF done properly
• Appreciate the range of risks involved in trade finance
• Understand the controls and mitigants available
• Be able to categorise risk according to client size and strength
• Appreciate the mechanisms of the working capital cycle
• Recognise that structured lending facilitates easier and closer control
• Appreciate why some structured trade finance lines can sometimes enable the bank to assist a weak or extended balance sheet
• Understand why trade finance is considered high risk for AML
• Be able to see risks in the round
• Be much better equipped to assess, consider and support trade finance propositions based on a comprehensive understanding of the risks

Trade Finance Overview

• Current marketplace
• US & Chinese relations
• Brexit – becoming the UK’s Hotel California
• Belt and silk road influences
• Broad principles of trade finance
• Parties to a transaction
• Roles, obligations, interests
• Typical users of trade finance products and services
• Payment mechanisms
• Trends – Migration to open an account
• Risk Ladder and review of traditional trade products 

Risk – The Critical Issues

• Risk appetite –set by the board
• Annual operating plans – should reflect risk appetite
• Understanding, identifying and managing risk
• Risk ladder and trade products
• Sovereign, Political / Country risk
• Institutional risk / Bank risk
• Corporate and other critical risks
• Importer and Exporter’s risk – delivery, quality, payment etc
• Risk mitigation, management and transfer
• Risk migration versus commercial necessity
• Managing risk within open account trade 

Case Study – the impact of risk on trade – the often differing bank & client’s perspectives 

Financial Crime Compliance & Sanctions

• Why does this matter? Why is trade finance considered a high risk?
• Understanding the risk-based approach
• TI CPI, FATF, Wolfsberg, ICC, OFAC and other influencers
• EDD, DDD and the need to obtain a clear line of sight across the value chain
• Money laundering methodologies – how is it done?
• Documentary fraud
• PEPS
• Sanctions overview 

Case Study: Delegates will be asked to consider a real case to identify FCC risks and suggest how they may have been managed and mitigated 

Review of Key Products

• The challenge to banks of disintermediation
• How does your customer analyse his risk?
• Which products do they use and why?
• Cash in Advance - summary
• Open Account – summary – the biggest risk challenge for the seller and the bank
• Trade debt insurance as a mitigant
• Collections – summary - Outward & Inward / Clean & Documentary
• Letters of Credit - summary - (covered in detail below), import and export
• Risks and opportunities – bank versus client perceptions
• Marketing possibilities and opportunities 

Case Study – How does your client choose to trade – what would you prefer? 

Regulatory and Trade Conventions and Their Role in Risk Migration

• Incoterms - the list
• Incoterms the impact
• UCP 600
• URC
• URDG
• Other Significant Publications 

Risks Inherent in Payment in Advance

• Definition and explanation
• Risks
• Mitigation techniques
• Migration techniques
• Risk/reward consideration
• Commercial tug of war
• Avoiding unhelpful retrospective advice 

Case Study – How can the bank assist when there is no obvious role? 

Risks Inherent in Open Account Trading

• Definition and explanation
• Risks
• Mitigation techniques
• Migration techniques
• Risk/reward consideration
• Commercial tug of war
• Granting buyer/supplier credit
• Why is it any different to domestic trade? 

Case Study - how do we fund this client preferred method of trade? 

Risks Inherent in Collections - Clean & Documentary

• Definition and explanation
• Risks
• Mitigation techniques
• Migration techniques
• Risk/reward consideration
• Commercial tug of war
• Granting buyer/supplier credit
• What is the real point of a clean collection? 

Case Study – Imports are easier to fund using collections than exports – discuss? 

Risks Inherent in Letters of Credit

• Definition and explanation
• Risks
• Mitigation techniques
• Migration techniques
• Risk/reward consideration
• Commercial tug of war
• Do we need 100% security cover? When and if will this is relaxed? 

Letters of Credit (L/Cs) - Additional Mechanisms

• Transferable L/Cs
• Revolving L/Cs
• Evergreen L/Cs
• Standby L/Cs
• Back to back structures (brief intro)
• L/C & Bill Discounting
• Avalised bills 

Case Study – This is by far the easiest and safest trade instrument for clients and the banks. With the exception of Standby L/C’s why do conventional  L/C’s account for less than 15% of all trade? 

Financing & Managing Import Trade Risks in Challenging Markets

• The value chain – bank perspective versus client perspective
• Structured vs. traditional trade finance
• Risk analysis of a trade import deal looking at
  • Credit risks
  • Product risks
  • Transactional risks
  • Price risks
  • Performance risks 

Case study example – consider a hypothetical case 

STF – Risk Management in Financing Export STF

• Prepayment
• Pre-export
• Pre-shipment
• Post shipment
• When do sales actually become debtors?
• The reality of title and control 

Case Study – L/C backed STF is easy to fund. How do we handle Open Account? 

Risk Assessment for Credit Analysis and Application Purposes

• Analysing the trade flows
• Break-even analysis
• Assessing facility size and structure
• Identifying and mitigating the risks
• Gearing, repayment, profitability and liquidity
• Specific lending with identifiable maturity dates
• Appreciating and controlling sources of repayment
• Security – Is the last resort in practice despite CCCPARTS 

Case Study - How can we re-learn short term TF skills and trade cycles and move away from the omnibus overdraft? 

Effective Use of Collections for Short-Term Finance

• Using collections as financing opportunities
• Identifying and mitigating risks
• Maintaining control 

Case Study – for example 

Introduction to International Demand and Contract Guarantees / Bonds

• URDG758
• Scope and Application – an introduction
• Different types - Bid, Performance, Advance payment, Warranty and Retention bonds
• Risk Migration – the challenge of unexpired bonds/guarantees
• Opportunity spotting
• Standby L/C’s (SBLCs) as Risk mitigators 

Case Study – a construction client’s needs 

Receivables Financing, Invoice discounting  and Risk Migration

• Mechanics of Securitisation
• Factoring and Reverse Factoring
• Mechanics of Factoring and Invoice Discounting
• Recourse, non-recourse, disclosed, confidential
• Setting lending limits including a “haircut” Role of Credit Insurance 

Case study – example 

Introduction to Innovations In Risk Management and Migration

• Silent confirmations
• Silent Payment Guarantees
• CTN options
• Purchase and sales ledger options
• Bank Assisted Open Account
• Securitising funds flows, future flows, receivables and inventories 

Case study – How to use these techniques to establish a base relationship with a target client 

Advisory Services

• Core offerings
• Trade intelligence
• Payments & collections
• Troubleshooting
• Progress chasing
• Translation and exposure risks
• Counterparty risks
• Export & import specialist advice
• Credit insurance
• Other services 

Introduction to ECA’s – Risk Transfer from the Bank to insurance Sector

• Credit Insurance
• Political Risk Insurances
• ECA structures
• Intermediation by ECA’s
• UK Government Schemes 

Other Risks

• Forex
• Correspondent banking
• Fraud
• SWIFT Payments
• Offshore banks
• Complex structures
• Financial engineering requests such as Repo’s 

Course Conclusion and Review / Feedback

The trainer had a highly successful, long and varied “fast track” career in Lloyds Bank which led him to a very senior management position in the bank’s private banking and wealth management division at an early age. He was then “head hunted” to join a merchant bank at main board director level. He now has over 40 years’ trade finance experience.

The trainer has been a freelance trade finance training consultant since retiring and is currently an external Master Trainer at HSBC, where he has delivered major trade and structured trade finance-related courses. He has also taught similar programs at Bank of China.

He is a highly adaptive, hands-on and highly sought-after trade finance trainer who always receives excellent feedback from delegates. He is comfortable training at any level of seniority and experience, from “black belts” to novices. In addition to his trade finance specialism, his expertise includes but is not limited to Risk Management, Trade Finance, Regulatory Compliance, FCC & AML and all aspects of Corporate, Private & Retail Banking. He is also a highly experienced soft skills trainer and has completed numerous “train the trainer” assignments.

Trade Finance remains the engine at the heart of global economic growth with China and then the USA dominating in terms of importance.

Trade finance is an interesting risk of paradox. It has always been a business area where if done well, credit losses are typically very low (mainly fraud, in practice), fee income opportunities are high and some of the products are very efficient users of capital. On the other hand, it is a very high-risk area for Financial Crime. It is estimated that as much as $2trillion is laundered annually, much of it using trade finance.

This practical and highly interactive two-day trade finance workshop is designed to assist trade finance practitioners in all three lines of defense roles to understand fully what risks are involved and how to manage and mitigate them. It focuses particularly on risk assessment, delivery, need identification, and selling opportunities. The course encourages delegates to see issues from both the client’s and the bank’s relationship manager’s viewpoint.

Methodology:

Highly interactive workshop-style with detailed real-life case studies and examples. Delegates are free to bring their own cases/examples to the sessions.

Level of Preparedness:

Beginners are welcome although a working knowledge and understanding of the methods of financing International Trade would be helpful.