Patrik Zekkar, global head of trade finance and working capital management at Nordea, shares his views on the overall business in the trade finance area, and the bank’s plans to scale-up and expand towards Asia.
Foo Boon Ping (FBP): I’m very excited to be speaking to Patrik Zekkar, global head of trade finance and working capital management at Nordea, a Finland-based bank and one of the largest banks in the Nordic region. Tell us, in the last 12 months in the trade finance area, how has the overall business been?
Patrik Zekkar (PZ): Thank you very much and thank you for taking the time to speak to us at SIBOS. The last 12 months have been incredibly interesting. Overall on the trade basis, we have seen quite a lot of turmoil. In terms of trade wars, it has developed new corridors and growth in trade in areas which we didn’t predict 24 months ago. There was more on the discussion table. There has been an increase in the expansion of trade between Nordic and Asia, on the backdrop of the European Union's increased trade partnership with Asia, rather than deducting the trade in the US. It has also seen the actual growth of trade versus Nordic and Africa, which has only been a topic for discussion and expectation but never really happened. I always see these first signs of real commercial contracts signed.And if you go a bit at the micro level, we come into the stage where we see that technology really plays a role and really happens, blockchain and distributed ledger technology. We also talked about which is visible to the eye of the customers. Collaboration, which was the topic of the last SIBOS and the SIBOS before that, is now materialising with commercial offerings to the customers in the blockchain space. We're taking the next step, internally in the banks, in the process efficiency measures with robotics going to cognitive intelligence and optical character recognition. In the next step, we’re expanding the gain of using technology for fulfilling the business cases that we talked about.
BP: You mentioned that there were some surprises in terms of corridor flows that you didn’t imagine 24 months ago on the back of this pivot of the European Union-China trade. Give us some color in terms of what form of transactions are taking place?
PZ: The US has been a big market for European and especially Nordics. The trade corridor between China and the US has suffered from the instability on a political level. That's, of course, opened up possibility for European suppliers to China. Also, China and Asia are looking for new markets to tap into with higher focus. It's a natural shift in our market economy where you see, if you have hurdles or boundaries, you turn to the next market to make your money. It’s a natural step being driven by political aspects.
BP: In terms of trade and currency, do you see any movement or shift to Euro, US dollar and Renminbi denominated trade, with the backdrop of lower rates?
PZ: Due to the reduced trade between Asia and China, we experienced a drop in the dollar supply in Asia. Currently, we have not seen a switch from dollar to euro, which I expect and hope to happen. But on the other hand, the shortness of dollar in Asia makes its squeeze on supplier to a working capital squeeze. You can see a tendency of monitoring very closely the transaction from a working capital aspect. Also, the competition, if we can provide good dollar rates to Asian suppliers, we will be attractive. That has been more scrutinised than before.
BP: Tell us about the opportunities in the working capital solution?
PZ: The good old trade loans are coming back to China and Asia in general in order to support manufacturing. Also, the competitiveness of European trade, if we can provide working capital financing in the purchase that was also in the other leg, showed to be beneficial.
BP: With the China-Asia link opening up, are there particular challenges in terms of anti-money laundering, even in terms of trade time and trade talk?
PZ: These challenges have always been there, but at least from our part, we reached a level where we have quite a substantial setup to manage that. What has changed in that area is the need to integrate the financial crime prevention and compliance screening in your business operation. This means that we cannot jeopardise quality in our assessments of who we do business with, but we need to do it more efficiently. There is a maturity in the dialogue now and in the way we handle this question. That's requested from our counterparties in Asia. It needs to happen fast and it needs to be efficient. Also, internally in the bank, we take a more business-oriented approach without jeopardising quality.
BP: How are you leveraging technology in that aspect?
PZ: In the screening part, we are utilising robotics technology and there’s integration of workflow systems. Cognitive intelligence is one area we are looking at. There are various possibilities definitely.
BP: Talk to us about blockchain and how trade digitalisation is more collaborative to get many parties involved?
PZ: As I said initially, commercialisation is the name of the game. We have an operational platform. We are engaged in we.trade, which we launched in May-June commercially after running a phase of piloting. It's in the scale-up phase. Currently, the scope was only Europe and small and medium-sized enterprises (SMEs). Based on the trend in Europe, the SME trade is growing within the service industry rather than the traditional large corporate within products and goods. It was an area where we have a high cost observed. It didn't really tap into the flows. It's about scaling up.2020 will be the year of the geographical expansion. Our first priority is, of course, Asia because that is the largest trade corridor and even more important now. We expect to see a higher pace in the development of the platforms in Asia, which we can connect to. There is a little bit of disappointment around that they haven't moved faster. We did the proof of concept with Hong Kong Monetary Authority. We're going into doing the live transaction in 2020. We need to move towards the production in my view. But the Asian consortium and platform are under construction or taking a wider scope. At the end of the day, they will come out in a much wider scope, while we take the approach of the small but faster to the market, and then expand while we are conducting business. I would have preferred that they were operational now, so we could start commercialising together.
BP: There are few trade initiatives in e-trade connection between Hong Kong and Singapore. Are you looking at that to pick up pace?
PZ: We are looking at that. We're also looking at licences and our platform to a market in Asia, so we can get the interoperability working smoothly and get them fast to the markets. That's also something we discussed and hope will help them, because time to market is everything now.
BP: Why do you think it’s taking so long in terms of some of the banks and some of your counterparties? There are a number of other platforms in the market. Is that one of the reasons why maybe it’s taking longer, because they are exploring the interoperability issue or the best solution issues?
PZ: Maybeit's the scope. If you take a larger scope, of course, time to market takes longer. Secondly, it's the collaboration part. Do we trust each other? Are we mature enough to collaborate, rather than try to own our own infrastructure and business? The growth pace, maybe there's an advantage in Europe. Because if we look at the growth for Europe, it has been not that dramatic. Trade is actually not growing that much if you compare to Asia where trade has been growing substantially during the years. If you're not in a growing market, then you find the incentive to collaborate. Because if you're in a growing market, everyone is fed. I hope something good will come out of that decline in Asia.
BP: Okay, great. Thank you so much.
PZ: Thank you very much.