BAFT Releases 2021 Annual Review (Digest)

Via Global Finance

After a horrible 2020, transaction banking is poised for a rebound.

Optimism permeated discussions during the 2021 annual meeting in June of the Bankers Association for Finance and Trade (BAFT). More than 2,000 attendees from 66 countries actively discussed the status and future of trade finance during the four-day virtual event.

The opening and closing keynotes provided strong economic outlooks as bookends for the event. Economists from Bank of America (BofA) and HSBC estimated that the global GDP was on track to reach a 5% or 6% growth rate in the second half of the year.

Individual GDP growth will vary country by country, noted Brian Moynihan, chairman and CEO of BofA and the closing keynote.

According to Michael Roberts, CEO of HSBC USA and the opening keynote, there are some areas of weakness. “Brazil and India see some improvement despite their horrific experiences with Covid-19.” However, the markets with strong growth correlate with areas that have higher vaccination rates, he added.

Meanwhile, BofA economists predict that US GDP growth could reach as high as 7% in the second half of the year, after reaching a 5% growth rate in 2020. This would be a doubling, or even a tripling, of GDP growth for the US, which has seen its GDP growth fluctuate between approximately 2% and 3% for the past few decades.

According to Moynihan, much of the growth could be tied to unspent stimulus payments sitting in customer accounts. “We estimate that 65% to 75% of it is still in our customers’ accounts,” he said. “And there is still the possibility of even more stimulus.”

If businesses continue to face supply chain issues, it could constrain GDP growth, he added.

Knock-On Effects

Covid-19’s near shutdown of the global economy in 2020 changed the face of transaction banking by quickening technology adoption while eliminating many inefficiencies.

The pandemic forced every bank to digitalize its offerings, according to Moynihan: “If we did the Paycheck Protection Program via mail, we would never have gotten there.”

Digitalization went from a “nice to have” to a business imperative for most banks. For example, HSBC expects to digitalize 80% of its controls in the next eight to 12 months.

“Clients are not waiting around for banks to get their act together,” said HSBC’s Roberts. “That is why we are maniacally focused on this.”

According to panelist Andy Kollegger, group managing director and head of Corporate and Institutional Clients International at UBS, client companies also have raised the bar on the quality of the digital offerings they demand. “They don’t want to get weekly reports in stacks of papers,” he said. “They want to access online and real-time information. They don’t want to authenticate using a myriad of little machines using code. They want to authenticate online with a secure system.”

From the start of the pandemic lockdowns, client concerns over deposits and principal lessened while they pressured banks for more-granular monitoring of cash flows and improved forecasting capabilities. “Some days [the forecasting] was a day in advance and sometimes a week in advance,” said co-panelist Diane Reyes, group general manager, global head of Liquidity and Cash Management at HSBC. “Then it went quarterly, and then six months in advance.”

Return to Normality?

Tom Wolfe’s novel You Can’t Go Home Again might as well have been about transaction banking. The pre-Covid economy no longer exists and has been replaced with shortened and simplified supply chains since the start of the pandemic.

“Many businesses are moving from just-in-time strategies to  just-in-case strategies, which reduce the reliance on certain suppliers,” said panelist Michael Spiegel, global head of Transaction Banking at Standard Chartered Bank.

Such moves have introduced new markets and trade corridors, as more investments pour into markets like India, Bangladesh, Vietnam, Mexico and various Central and Eastern European countries, he added.

On a more personal level, banking heads are still mulling how to bring remote workers back into their offices. The conversation is no longer “if,” but “when” and “how.” For some, it will mean going back to the old way, perhaps with slight modifications. “At the end of the day, we are a ‘work from the office’ company,” said BofA’s Moynihan, while acknowledging that “we might have to redefine what that means.”

Moynihan believes the prolonged time away from the office has already adversely affected tens of thousands of employees the bank has hired since 2019. “The kids we hired in 2019 worked in the office for only a short time and those we hired in 2020 and 2021 have never been in the office,” he noted. That has hindered new employees in gaining the benefits of informal conversations with mentors and experienced colleagues. For Moynihan, at least, “to get the culture right and the risk management right means getting back to the office.”

Yet, some institutions found benefits from remote work, including increased productivity, and seek to leverage the new capacity. HSBC is among those expecting to take a hybrid approach, splitting employee schedules between working from the office and working remotely. “We can perform in a remote environment and have proven so,” said Roberts.

ESG Blooms

According to various conference speakers, one topic that the pandemic did not sidetrack, even temporarily, is the continued growth and interest in sustainable development and the investments that enable it. If anything, the pandemic seemed a reminder of rising risks to sustainability.

“I don’t know of a sector or a CEO who has not thought about it and is not addressing it,” said HSBC’s Roberts.

On April 21, 43 banks founded the Net-Zero Banking Alliance, whose current 53 members commit to aligning their investment portfolio with achievement of net-zero carbon emissions by 2050 in tandem with the United Nations’ Race to Zero initiative.

HSBC, a founding member of the Alliance, expects to reach zero emissions within its operations by 2030, he added.

UBS, also an Alliance member, signed the Principles for Responsible Investment of the Financial Stability Board’s Task Force for Climate-related Financial Disclosures and declared that sustainable investment was the default for discretionary accounts, said UBS’ Kollegger. “That is a big move for the world’s biggest wealth manager.”

BofA already discloses its metrics for sustainable investment using the environmental, sustainable and governance (ESG) reporting framework developed by the “Big Four” accounting firms and released in 2020.

Meanwhile, HSBC has expanded its ESG offerings beyond simply the asset side of its balance sheet.

“During Covid-19, we felt that clients should be able to participate on the depositor liability side of the bank’s balance sheet,” explained HSBC’s Reyes. “There are such things as green deposits” that enable clients to pledge their deposits toward offsetting green financing and permit them to claim credit in their corporate filings.

“We started hosting these offerings in three markets and will move into many more markets this year,” she added.

According to Moynihan, these initiatives are the only way the world will solve its most significant problems. Without incorporating sustainable investments within finance, he believes, there is not enough money to meet the United Nations’ 2015 Sustainable Development Goals, which he estimates would take $6 trillion annually. By using defined metrics, like those established by the World Economic Forum’s International Business Council and others, companies can deliver to their shareholders and society. “They are not mutually exclusive,” he concluded.