Can trade finance plug the gap left by Australian banks' retreat from wealth?

Over a third of businesses expect trade finance demand to rise in the coming year.

Trade finance is set for a positive growth trajectory in Australia, according to business banking market research firm East & Partners, which is set to give a big boost to banks recuperating from a series of losses in wealth management.

Over one in three enterprises (36.6%) expect trade finance demand to increase in the coming year, belying mounting trade protectionism and geopolitical tensions wracking the global markets.

The revelation comes as a welcome development as Australian banks have been steadily packing up their bags and retreating from wealth management business as CBA, ANZ, and NAB have all divested their stake in the past few years. Only Westpac remains in the big 4 with a wealth management business.

Also read: Australian banks speed up Asian retreat as competition and oversight mounts

Positive sentiment in trade finance is primarily driven by China’s trillion-dollar Belt and Road Initiative which seeks to link maritime and overland routes between various Asian and European economies as well as an increased uptake in eTrade solutions and ongoing digitisation of paper heavy trade finance documentation processes.

“Australia is excellently positioned to take advantage of surging hard and soft commodity markets,” East & Partners noted. LNG exports account for a record $172.83b (A$230b) in energy exports in 2018 alone and is set to surpass iron ore to become Australia’s most valuable resources export within the next five years.

Trade customers are bracing for a long-awaited increase in financing rates from historic lows, set to place further pressure on pricing competitiveness and margins at a time when banks are already experiencing wallet share erosion and difficulty retaining customer trade volumes.

“Pricing competitiveness continues to increase as margins come under pressure, evidenced by higher customer churn intentions as middle market enterprises in particular plan to switch some or all of their trade financing business to another bank, be it a Big Four, international or non-bank offering,” Martin Smith, East & Partners head of markets analysis said.