By SHARIDAN M.ALI sharidan@thestar.com.my
PETALING JAYA: Banks are optimistic of the outlook for trade financing this year, buoyed by increasing demand from the domestic manufacturing sector due to stabilising global economic conditions.
In the first quarter this year, most banks recorded robust growth year-on-year (y-o-y).
About a year ago, at the height of the global economic crisis, StarBiz reported that trade financing had declined by 70%.
RHB Banking Group director of retail banking Renzo Viegas said the bank had generally seen an uptrend in trade financing requirements since the second quarter of 2009.
“Though the growth is still small, we foresee it will strengthen amid the positive outlook for global economic recovery.
“Improving economic conditions locally and internationally has contributed to the growth in the requirements for trade financing,” he said.
“Growth contributions are mainly from the manufacturing sector such as electronics and electrical, and agriculture and construction-related industries.
“Our strong customer base in these industries has contributed to our growth in the trade finance business,” Viegas told StarBiz.
For the financial year ended Dec 31, he said, RHB processed more than RM45bil of trade volume, of which more than 60% required trade financing.
“This year we are projecting double-digit growth in line with the expected favourable local and global economic scenario,” he said.
Alliance Bank Malaysia Bhd executive vice-president, head of SME banking, Steven Kenneth Miller said the bank’s trade financing volume in the first quarter this year (calendar year), as opposed to the corresponding period last year, had increased by RM240mil, representing a growth of 8%.
“The increase in the volume of trade financing is mainly attributed to improving economic conditions both globally and locally, which saw businesses replenishing their stocks amid renewed orders or contracts.
“Our customer base has also grown in the financial year 2010, contributing new business volume to the bank.
“Further growth is anticipated as the economy recovers, with the gross domestic product (GDP) growth forecast to be in the region of 4.5% to 5.5% this year,” he said.
Miller said the bank’s total trade financing volume in the previous financial year ended March 31 was RM12.3bil and it was cautiously optimistic of the trade volume growth for the current year.
“We plan to grow above the market average by leveraging on our branch network, which includes 26 specific trade windows catering to our commercial customer base,” he said, adding that trade financing made up approximately 30% of Alliance SME’s asset base.
OCBC Bank (M) Bhd head of global trade finance Chuang Boon Kheng said that demand for the bank’s trade financing products grew by more than 20% y-o-y in the first quarter this year.
“And we are looking at growth in the teens for this year as the global economy has recovered significantly since the fourth quarter of last year, following the implementation of numerous national policy measures that help to improve global trade conditions.
“However, the recovery path remains uneven, with developing Asia leading the global growth,” she said, adding that Malaysia’s economy too had rebounded in the last quarter of 2009.
Chuang said the domestic manufacturing sector, which was largely dominated by export-oriented industries, had also picked up towards the end of last year.
“We note that the bulk of the increase is coming from export sectors such as wood-based, palm oil and resource-based commodities, and represents mainly intra-Asia trade flow,” she said.
In line with the robust trade financing growth so far, the banks are also projecting positive outlook for their loan growth this year, with RHB expecting a double-digit increase in the current year ending Dec 31.
“Trade financing is one of the components of banks’ loans and advances. Thus, any increase in trade financing volume will have a direct impact on loan growth,” Viegas said.
“Currently, trade financing contributes about 11% to RHB’s loans and advances.
“In addition, trade financing continues to be one of the key focuses for most banks as it also contributes to fee and foreign exchange income,” he said.
Meanwhile, Chuang said OCBC’s total loans grew 5% to RM32.6bil in previous financial year ended Dec 31, due to increased lending to SMEs and large corporate customers as well as higher mortgage loans.
“We are targeting loan growth of at least 10% this year,” she said.
Miller said Alliance SME projected loan growth of between 15% and 20% for the current financial year, due to the continued economic recovery supported by both government and private investments.
