Less talk, more action on the trade gap

We keep talking about the trade gap.

You’ve definitely heard about this before: the gap that exists between the level of demand from borrowers and the amount banks are willing to loan. The generally accepted size of the gap is around $US1.5 trillion – at least according to the World Trade Organisation and Asian Development Bank, among others.

As an industry we talk about it a lot. We've been doing it for a few years now. But the truth is talking will only achieve so much. All players in the sector – and we mean everyone - has a role to play in facilitating the change required to close the gap.

What’s needed in an agreement around what we can do to make a positive and transformative impact. Without such an agreement, that part of the trade component will go unfinanced and we will just keep talking about it forever. It's not going to go away.

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“Everyone in the sector has a role to play in facilitating the change required to close the gap.”

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On one hand

Ultimately the gap hurts everyone – banks, borrowers and the broader economy. Data cited by the World Economic Forum suggests it could rise to $US2.4 trillion by 2025 unless action is taken.

There are five areas I think we can look at which could help move the needle toward a solution. The first is banking as an industry needs to continue to encourage regulators to pursue global alignment.

That's on two sides: one side of it is financial crime, which costs the global economy a reported $US2.4 trillion a year. We all appreciate the fact we need to have robust, safe financial systems. That's really important. We don't want financial crime taking place.

But the way in which we do it, often because regulators are not necessarily aligned on this, is seen to waste a lot of time and create inefficiencies. I’ve written before about how more than 90 per cent of respondents to an ICC Global Survey in 2018 admitted compliance is viewed as an obstacle to growth.

I think the sooner the banking industry embraces the role it has to play in helping prevent financial crime, the quicker we can move the economy forward in a compliant and safer way. As an industry it’s incumbent upon us to help influence our regulators around that. We also need to help the regulators understand trade assets are a lower risk asset class. The trade register has proven that time and again.

In isolation

The second thing is we need to change our mindset and not think banks are going to solve the gap in isolation. Big banks are often constrained by legacy systems and around 40 per cent of what we spend on information technology simply keeps our existing platforms going.

We need to be able to leverage bright ideas and think differently. That's what the economy is asking for.

Of course banks are regulated entities and we can’t always move as quickly as we'd like. But there's still a mindset change required that says ‘we need to work with our customers, tech groups and start-ups to think differently’. Those kinds of groups have freedom and are not constrained by legacy thinking.

The third thing is the pace of technology means we don't know what future platforms are going to look like. The one thing that we do know is we're moving to greater digitisation of the economy and the quicker we all move to standardised processes the better we will be – both in terms of efficiency and being prepared for what the future holds.

Undelivered  

The fourth thing is an increased use of supply chain tools. As an industry we have talked about the supply chain revolution for 20 years. I still don't think it's delivered the dream we all know it can produce.

But tools such as the Trade Information Network are now giving us the opportunity to provide financing and offer increased visibility into large cross-border movements of goods, making financing decisions much easier. The more we can learn from and use those tools, the better banks will be at finance the supply chain.

Finally, the rise of sustainable financing and its growing importance to large, multinational clients is increasing the opportunity for financing around the world. I believe leveraging good governance will ultimately help with the creditworthiness of smaller companies - whether they're banks or non-banks.

Mark Evans is Managing Director, Transaction Banking at ANZ. This is an edited version of comments made at the International Chamber of Commerce (ICC) annual meeting in Beijing in April.