This Advanced Trade Finance course can also be presented face to face in-house or via live in-house webinar.
Advanced Trade Finance Course Objectives:
- Understand how trade finance works at an advance level by going beyond just a list of payment methods and their features
- Appreciate how customers perceive risk
- Understand why open account trading dominates
- Appreciate why letters of credit refuse to die, despite numerous predictions to the contrary
- Explore the current market place and the impact of current global trends
- Appreciate the trade finance cycle including break even analysis
- Realise why financial crime compliance & sanctions are now mainstream considerations
- Understand the risk based approach and the impact on trade finance
- Get to grips with DDD, FATF, TI, CPI and their impact
- Understand and identify the traditional risks
- Review the key products and how the customer analyses his risk
- Master an understanding of the supply chain management and finance
- Learn about the traditional letters of credit and the four contract concept
- Explore standby letters of credit which dominate bank supported trade
- Learn about exporting finance issues and controlling credit exposure
- Explore the effective use of collections for short-term finance
- Get to grips with the international demand and contact guarantees/bonds
- Learn about the commodity sector and its players
Advanced Trade Finance Course Content:
The Current Market Place
- Recent evolution and current developments –Brexit hangs over the UK
- The challenge of emerging markets
- The dominance of China
- Geo-political challenges especially protectionism
- The traditional three bands of clients: Global and Large Corporate, MME’s, the rest!
- Understanding trade finance at a fundamental level.
- Typical users of Trade Finance products and services
Financial Crime Compliance & Sanctions
- Why does this matter? Why is trade finance considered high risk?
- Understanding the risk based approach
- TI CPI, FATF, Wolfsberg, ICC, OFAC and other influencers
- CDD and the need to obtain a clear line of sight across the value chain
- Money laundering methodologies – how is it done?
- Documentary fraud
- 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
Traditional Risks – The Critical Issues
- Understanding, identifying and managing risk
- Credit risk, Market risk & Operational risk
- Sovereign, Political / Country risk
- Institutional risk / Bank risk
- Corporate and other critical risks
- Importer and Exporter’s risk
- Other risks in the transaction and how to mitigate them (transport risk, warehousing, force majeure, etc.)
- Risk mitigation, management and transfer
Case Study: An example using three different payment methods. Delegates will be asked to identify and explain what type of client would choose one in preference to the other two and why, to illustrate risks in reality.
Review of Key Products
- How does the customer analyse his risk?
- Which products does he use and why?
- Payment in Advance
- Open Account
- Collections – Outward & Inward / Clean & Documentary
- Letters of Credit (covered in more detail below)
- Risks and opportunities
- Control possibilities
Case Study: Showing how clients sometimes see the world of risk in a different way to bankers.
Supply Chain Management & Finance
- The origins of SCM and what does it mean in practice
- Understanding the issues in SCM – “the tug of war” between supplier & buyer
- Bringing about a “balance” between parties for effective processing
- Understanding about movement of ‘information’ ,’goods’ and ‘cash’
- Supply Chain Finance Main SCF models: accounts payable – centric, accounts receivable, BPO
- Review the risk aspects of SCF
Case Study: Showing how Reverse Factoring works and how both Buyer Centric and Seller Centric models are being employed.
Letters of Credit (L/Cs)
- Traditional L/C’sThe four contract concept
- Red Clause
- Green clause
- Revolving L/Cs
- Transferable L/Cs
- Back to Back L/C structures
Case Study: Showing how different types of LC’s are used, why this is the case and what difference it makes to the risk profile.
Standby Letters of Credit
- History and origin
- The dominant trade finance product
- Risk management
- Issue and assessment
- Understanding the applicability of ISP98 and UCP 600 for standbys
- Fraud and unfair calling
Case Study: Using a standby in practice
Export Finance issues
- Looking at the big picture
- Understanding the purpose of borrowing
- Country risk issues
- The reality of title and control
- Negotiation under letters of credit
- Discounting of deferred payment L/C, acceptance credits (with or without recourse)
Case Study: Delegates are asked to consider how to fund an export order using different types of contract arrangements.
Controlling Credit Exposure – Formulating a Limit
- Understanding and explaining the trade cycle
- The use of time lines
- Assessing and appreciating funding gaps
Case Study: Using time lines and facility plotting to spot double finance and identify the actual funding gaps and customer needs.
Course Content – Day Two:
Structuring Finance for the Trader
- Analysing the trade flows
- Assessing facility size and structure
- Specific lending with identifiable maturity dates
- Appreciating and controlling sources of repayment
Case Study: An example of a medium size business using structured finance.
Effective Use of Collections for Short-Term Finance
- Using collections as financing opportunities
- Identifying and mitigating risks
- Maintaining control
Supporting the Trader
- Using the goods as collateral
- Assessing the value of goods
- The value of pledges and trust receipts
- The need for structured lending
Case Study: How to use goods as security for a trade deal.
Warehousing of Goods
- Warehouse location
- Management assessment
- Legal frameworks
- Obtaining and retaining title and control
- Risks and responsibilities of Collateral Managers
- Cost versus control
Case Study: Warehousing in practice using a real example.
International Demand and Contract Guarantees / Bonds
- Scope and Application – an introduction (suretyship v. demand guarantee)
- Indemnities versus guarantees
- Different types – Bid, Performance, Advance payment, Warranty and Retention bonds
- Rules governing guarantees and bonds
- Legal jurisdiction and expiry date issues
- Value of using URDG 758 – ICC Rules for demand guarantees
- Impact of non bank competitors – COFACE, Euler Hermes
Case Study: Using these in practice.
- Mechanics of Factoring and Invoice Discounting
- Forfaiting – an important adjunct to the TF mechanism
- Role of Credit Insurance
- Mechanics of Securitisation
- FCC risks
Case Study: A real example showing how this makes a huge difference to working capital.
The Commodity Sector and its Players
- History and origins of the commodity industry
- Understanding the nature of ’commodities’
- Analysing the players – growers / producers; traders and end-users
- Financing of commodities
- Looking beyond the balance sheet
- Available documentation – taking and retaining title
- Commodity futures, options and derivatives
- Hedging – a critical process in commodity finance
- Role and function of the exchanges
- Main risks in the commodity trade (market, fraudulent practices, legal issues, recent legal cases)
Case study: A large scale commodity deal and how it can be funded at an acceptable level of risk
- Overview – when to use
- Pitfalls and complications
- Possible structures and time management
- When to syndicate
- Lead or participant role
- The completion from capital markets – high yield bonds
- Selling down exposure
- Impact of quasi-governmental agencies
- Risk/reward analysis
Case Study: A syndicated deal.
Course Conclusion and Review / Feedback
Background of the Trainer:
Your course director has spent more than 40 years in the banking and financial sector, much of it in a senior managerial/Director role. He is a former Institute of Banking Lecturer, having gained distinctions in the exams. He is a subject matter aspect on all aspects of retail, corporate and global banking, including risk management and regulatory compliance. He has lectured extensively to both leading global financial institutions and to smaller bespoke specialists. He has delivered extensive programs in all parts of the world including the USA, Europe, MENA, Africa and Hong Kong. He is currently an accredited Master Trainer at the world’s biggest global trade finance bank.
Advanced Trade Finance Course Summary:
Trade Finance has been “re-discovered” yet remains a little mysterious. It is a product that has always generated strong revenues- often non funds based – and traditionally has exceptionally low credit losses (on a portfolio basis). Most global banks are able to apply very low probability of default ratios and usually lose as much to fraud as to actual credit losses.
The major challenge to trade finance in recent times has been the impact of Financial Crime Compliance and Sanctions. Whilst credit losses and hence credit risk is low, FCC risk is very high because of the increasing tendency for global trade to pass through more than one country, use different modes of transport, use different currencies and transit through some regions where money laundering controls are not as strong as in others. This makes the audit trail very challenging. This is not a course about FCC but as trade finance is reckoned to be the main driver for money laundering, it needs to be understood.
To compound matters, many global banks have reduced their correspondent banking networks by up to two thirds – often based on the Transparency International CPI. This means it is becoming increasingly likely that more than two banks are involved in a transaction, causing delays in processing and frustration for the client. Sight LC’s can take 10-15 working days to be processed when there are two to three advising banks. Of course this has created opportunities for confirmation activities – provided FCC clearance is obtained.
The course will use numerous case studies and will involve a considerable element of interactive class discussions. The Director will encourage delegates to question and test their knowledge at each stage of the course. At the end, all delegates will have a clear and full understanding of exactly how LC trade takes place currently across the globe at almost every level.
What Redcliffe clients are saying about the course:
“Very relevant to our kind of work. Practical, real world problems discussed concise”
–Credit Risk Manager, First National Bank
“A lot of real life examples, solutions to the case studies included in the course book were good”
–Vice President – Trade Finance Syndicators, Barclays PLC
“The use of structured products and showing how to think from other persectives was great”
— Trade Finance Advisor, DNB Bank