Fermat Capital Management’s Adam Dener spoke at the TXF 2020 Global Trade Virtual Conference on the economics of bank trade finance and the role of non-bank actors in improving bank economics in the sector.
On December 8th, 2020, Fermat Capital Management’s Adam Dener spoke at the TXF 2020 Global Trade Virtual Conference with a presentation titled, “It’s Just Business: The Peculiar Economics of Trade Finance”. His session addressed the challenges of managing trade finance bank origination businesses, covering the economics of bank trade finance and the role of non-bank actors in improving bank economics in the sector.
Most trade is financed by businesses themselves without direct external financing. Banks directly address only a small percentage of trade overall but are the largest external financing source for trade. Bank trade finance businesses face a variety of external and internal factors that can negatively impact returns and can severely restrict commercial business vitality. Adam’s presentation focused on three main areas that can drag profitability and constrain supply of capital in the sector: low origination pricing for assets, high origination costs – specifically funding costs from banks – and how asset origination demand is unpredictable and uncertainty in demand availability is uncompensated. Adam’s presentation reviewed these factors, sharing data on bank funding costs and asset demand, to demonstrate the challenges and examined strategies to address and develop a sustainable and commercial trade finance business. His key take-away is that in the face of these difficulties the most efficient course of action for banks is to sell more of their assets to reduce funding costs, while simultaneously increasing asset origination.
His presentation can be accessed here.
Last updated January 2021