Dubai: British banking major Barclays wants to tap into the huge trade and working capital finance opportunities in the region through the UAE utilising the country’s status as a global trade hub that connects Asia, Middle East Africa and Europe, Baihas Baghdadi, the Managing Director and Global Head of Trade and Working Capital told Gulf News in an interview.
“Strategically from a trade finance perspective we are determined to be present in all the major trade hubs such as Singapore, Hong Kong, Frankfurt, Dubai, London and New York. The UAE is top priority in the Middle East and North Africa (Mena) region both in terms of volumes and number of transactions,” said Baghdadi.
In terms of trade finance business, the UAE is one of the top five countries for Barclays. The bank covers the whole region from the UAE. While the GCC as a whole is an important trade partner of the UK, Saudi Arabia and the UAE accounts for a major share of its trade finance related business in the region.
In the global trade flows, the UAE is a very important hub in the east — west trade flows. “For us the UAE is a great corridor to Asia. The India — UAE corridor is a really an important one. Barclays is present in India and the UAE and we want to further leverage that corridor,” said Baghdadi.
With the growing trade links of the UAE with other global hubs such as Hong Kong and Singapore, the bank sees new opportunities in the east — west trade through the UAE. For trades originating in the West too, the UAE is a major hub for Barclays because of its close connections with leading western corporates and multinationals.
“With our massive investment banking foot print in the west, we cover most of the global corporates in the Western hemisphere. We do support all our global corporates doing business in the GCC. From the west we complement our product offering by following their trade flows into this part of the world and we also capture opportunities in trade flows to and from the east,” said Baghdadi.
Competition
Trade finance being relatively capital efficient and low risk, because of its self-liquidating nature has attracted a lot of competition and price undercutting in the recent years.
The products offered by these trade finance businesses, which include letters of credit and financing for inventories and suppliers, are short-term, generate fees, and are light on the balance sheets. Those are important considerations in an era when banks are under increasing pressure from regulators globally to shore up capital and rein in risky lending. But the rising costs of regulatory compliance and fraud risks have increased the cost of doing business which could eventually result in a shakeout in the industry.
“Trade finance is short term in nature and it is self-liquidating. It is very capital efficient. Most of the risks related to sophisticated structures and potential fraud. Here is where banks have to do their due diligence and KYC [know your customer] process very carefully making sure the underlying transactions is for real. That is an expensive process. When people gets into competition people tend to forget the costs and offer competitive pricing. This is good for the market but such low prices may not be sustainable,” said Baghdadi.
Despite the competition and emerging challenges in trade financing, Baghdadi said Barclays is committed to supporting the two way east — west trade flows through the UAE and further developing new trade opportunities to Africa through the UAE hub.
