Trending Upward

Addressing questions on regional trade finance, Madhavan Thooppal, Head Trade Services, NBF responds with his outlook for trade-related growth as very positive, that it is too soon to notice any visible effects following the inception of ISO20022 and that banks are developing sustainable trade products to meet growing ESG imperatives

28 percent in 2021 to touch AED 1.911 trillion, and a further 17 percent in 2022 to reach AED 2.233 trillion, passing the AED 2 trillion mark for the first time in history.

With the UAE’s non-oil foreign trade setting records, the outlook for traderelated growth in the country and the region is very positive.

Are you seeing effects of the migration to ISO 20022 for crossborder payments and reporting in your trade finance transactions?

While ISO 20022 is expected to facilitate electronic data exchange between financial institutions, improving efficiency in cross-border transactions

Are you expecting noticeable growth of Trade Finance in our region in the coming years?

As the COVID pandemic began to abate, at NBF we experienced a faster recovery in trade volumes in 2021 and 2022, as they bounced back from 2020 levels. In fact, we witnessed growth of nearly 42 percent in terms of trade volumes over the course of 2021, and if you compare FY 2022 to FY 2020, the growth in trade volumes was approximately 85 percent.

This is testament to the fact that trade volumes have not just recovered to prepandemic levels but are now surpassing them – in a stable way.

At the national level we see the same trend – as the world recovered from the pandemic, the UAE’s non-oil trade performance shifted to a trajectory of unprecedented growth. After declining by 12 percent to AED 1.496 trillion in 2020, the country’s non-oil trade jumped with parties exchanging data digitally, the majority of trade transactions still rely on paper documents such as Bills of Lading, AirWay bills etc. So, there is still a long way to go.

In strained times with lacking liquidity or falling stock prices, can financing trade via traditional instruments – letters of credit or promissory notes ease matters?

Letters of Credit continue to remain an important method of trade settlement; however, there is also a growing requirement for - and usage of - open account financing, such as trust receipt loans for imports. These transactions are cheaper in terms of banking charges, as well as less complicated, when compared to the preparation and presentation of documents under Letters of Credit.

Notwithstanding the growth of open account financing, as cross-border trade increases, Letters of Credit remain the instrument of choice in this type of trade, as they provide security to exporters in terms of mitigating buyer risk of non-

COP28. Given that trade finance is an important driver of the regional economy, banks are expected to engage with clients on ESG issues when granting trade finance facilities. Banks are also coming up with tailored trade products like sustainable Letters of Credit and sustainable supply chain finance. payment. Furthermore, in some cases, exporters can ask their bank to add confirmations to these Letters of Credit, thereby mitigating the country risk for cross-border transactions.

Is there a case for the adoption of Blockchain and distributed ledger technology in trade finance?

Promissory notes and bills of exchange continue to be used for trade settlements, because of their uncomplicated nature as well as option for financing.

With COP Summits occurring in the region, are ESG considerations influencing trade finance operations?

There is an increased focus on how banks in the region are integrating ESG factors into their financing and business decisions, especially with the UAE hosting

Currently we use a blockchain-based supply chain financing platform for invoice financing. This platform seamlessly connects the buyer, seller & financing bank (NBF), and the shipping documents relating to the transaction are uploaded by the seller and accepted by the buyer electronically. NBF finances the invoice to the seller after digital acceptance by the buyer. The transaction is financed digitally on an end-to-end basis, without any requirement for application or paper documents.

NBF has a dedicated Business Banking segment and services a large number of SMEs in the region. Through NBF, SMEs are able to access all trade finance products such as Letters of Credit, Letters of Guarantee, Trust Receipt Financing and Invoice Discounting, in the same way as any large corporates.