Online delivery slots remain elusive, but perhaps the fact that UK supermarket shelves are stacked with toilet rolls and tinned tomatoes once again is a sign that panic buying due to the coronavirus pandemic has begun to abate.
But unprecedented demand for supplies from supermarkets is offset by a demand slump from restaurants, cafes, hotels and bars that have been forced to shut their doors.
Travel restrictions also limit the movement of goods and services, and mean that fresh produce cannot always get to its intended destination. Farmers across the globe complain that fruit and vegetables are being left to rot and that milk is being poured away because of distribution challenges.
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Vinay Mendonca, |
“Some of our clients in the food industry are shifting distribution away from the food services sector, such as restaurants and cafes to supermarkets and grocery stores, and are facing large-scale logistic disruptions, especially on cross-border perishable movements that rely heavily on commercial air-traffic,” says Vinay Mendonca, managing director and global head of product, propositions and structuring, trade and receivables finance at HSBC.
Supply chains across the globe are under severe pressure. Creating, maintaining and repurposing them for food distribution – and other essential items – in this new environment will be one of the biggest challenges transaction bankers face today.
“Closing gaps, diversifying supply chains and supporting our clients to repurpose their businesses will be essential to maintain trade,” says Mendonca.
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Matthew Davies, |
Onboarding new suppliers and distributors as quickly and safely as possible will be a priority; and digital solutions will expedite the process, according to Matthew Davies, head of global transaction services, EMEA and global co-head of corporates sales, global transaction services at Bank of America.
“On-boarding used to be an arduous task, but over the last few years many banks have learnt to make this much more user-friendly through developments in technology,” he says. “We have learnt a lot from speaking with our clients and partnering with fintechs to help us simplify and streamline the process.”
Bank of America is leveraging application program interfaces (APIs) to tap into data sources and onboard new suppliers.
Indeed, open banking services and API traffic was up by 30% across Bank of America’s digital channels between March and April of this year, explains Tom Durkin, global head of digital channels, global transaction banking, at the bank.
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Tom Durkin, |
“We didn’t expect such a large spike,” says Durkin. “We assumed the focus would be supporting our own bankers and that our clients would access existing products and tools remotely, but in fact we have seen increased demand of digital tools across the board.”
There has been a similar surge in tech adoption at DBS.
John Laurens, head of transaction banking at DBS, says: “We have been working on digital solutions to take all of our on-boarding and know-your-customer (KYC) systems online, but the onset of the virus accelerated the transition.
“Now we have eradicated all physical paper in these processes, and our corporate clients can fill in all paperwork digitally in two main ways – through DBS Ideal, which can be accessed via web browser, or through partner platforms enabled by our API suite; whichever is more convenient for them.”
Transaction bankers have been eager digital advocates for some time, exploring new tech in an attempt to streamline clunky and expensive cash-management and trade-finance processes. The investments are beginning to pay off.
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Joon Kim, |
Filling in gaps in the supply chain, however, will come with new risks. Banks will need to weigh up the overall cost of this risk exposure in serving their clients, especially small and medium-sized enterprises, says Joon Kim, global head, trade finance product and portfolio management at BNY Mellon Treasury Services.
“As banks move to financially support companies and SMEs further down the supply chain, it is a reasonable assumption that transaction bankers will have to do more due diligence at the SME level than for a well-established company,” says Kim.
“And while banks have different risk appetites, they will need to stay on top of their portfolio now more than ever to ensure that they have the capacity to mitigate against increased risk. This is because, as an industry, we need to focus on the transactions that not only help prop up supply chains but serve our shareholders and protect our balance sheet.”
Risk profile
From a risk profile perspective, the previous performance of suppliers and existing corporate clients will be carefully considered before a bank makes the decision to provide any type of financial support, says Mendonca.
“Yes, this may be new territory for some of our corporate clients, but they have an existing track record that we can rely on,” he says.
“Suppliers have become much more interested to join supply-chain finance programmes, but with this they are increasingly interested in pre-shipment financing,” he adds. “Our anchor clients are willing to underwrite the loans absorbing some of the risk, investing directly into their own supply chains.”
This can mean supporting clients with working capital.
The pandemic should not be construed as the end of global supply chains – local and regional supply chains are not necessarily sustainable on a standalone basis
– Lisa Robins, Standard Chartered
At HSBC, the bank has made £3 billion available to importers and exporters in need of additional support, including access to liquidity, extending payment terms of up to 60 days in some cases, faster guarantees and even providing a dedicated helpline to companies needing to speak to trade finance specialists.
In April, Standard Chartered announced that it had created a global fund of $50 million to assist those affected by the pandemic and $1 billion in loans to be earmarked for companies providing goods and services to help the fight against the virus, as well as those planning to switch into manufacturing products in high demand during the pandemic.
At Bank of America, online applications are now being accepted for the US government’s small business relief programme, which will also support companies further down the supply chain.
“We are also helping with risk-mitigation solutions as they diversify their supplier and distribution base by establishing trade with new counterparties in different markets to address some of the logistics challenges,” says Mendonca.
Nevertheless, banks that have a responsibility to shareholders and clients will need to find the right balance. In this challenging economic environment and there will be casualties along the way.
Government intervention
This is where targeted government intervention will be essential. Around the world, governments have promised trillions of dollars in stimulus packages to support SMEs that may struggle to access bank funding under the current circumstances.
In the UK, there is the Coronavirus Business Interruption Loan Scheme, for example. In the US, money has been pumped into the Paycheck Protection Program (PPP) to support smaller companies across the country keep staff on their books via the Coronavirus Aid, Relief and Economic Security Act.
But relief hasn’t been universal or targeted enough. For example, several loopholes have meant that earlier PPP relief went to large multinational corporates; and in other countries, cash injections to keep businesses alive have been insufficient.
“Government stimulus packages need to focus on the real economy that generates trade and business instead of providing simple liquidity relief for companies that are paralyzed,” says one European transaction banker.
“The next phase of relief should focus on moving commercial flows,” says Marcos Neto, director of the Finance Sector Hub at the United Nations Development Programme. “It’s one thing for governments to pummel money into the system, but there needs to be some thought given around who they are trying to reach.
“Preliminary research shows that SMEs run by women, ethnic minorities, veterans and other minority groups in the US have not been able to access relief as much as other small companies,” he continues. “If we want to support the entire economy, we need to support the entire system, and this might mean more targeted support.
“In developing countries, where governments have far less fiscal space, the focus will need to be even more targeted.”
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Lisa Robins, |
Given the level of disruption to supply chains as a result of the pandemic, things may never be the same again.
“The pandemic should not be construed as the end of global supply chains – local and regional supply chains are not necessarily sustainable on a standalone basis,” says Lisa Robins, head of transaction banking at Standard Chartered.
“Just look at manufacturing: one finished product will need items sourced from a number of different countries. So unless you build capacity to do this domestically, countries will remain interconnected and struggle to meet demand if they do it alone.
“Perhaps as 3D printing becomes more scalable, things might change, but this is more of a long-term goal,” she says. “Even so, we need to consider that the raw materials required for printing will still need to be sourced from somewhere.”
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