Transcript Main Title of Document

COMMERCIAL BANKING
www.rbsmarkets.com
Getting Paid
The Bankers Perspective
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COMMERCIAL BANKING
16/07/2015
16/07/2015
Getting Paid - The Banker’s Perspective
16/07/2015
David Pearson
International Relationship Director
The Royal Bank of Scotland
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Executive Summary
16/07/2015
 The Risk Ladder in pre-contract negotiations
 The growth of Receivables Finance in overseas trade
 Protecting against exchange rate fluctuations
 How International Payments are made
 Suggestions to make it easier for your customers to pay you
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International Credentials
16/07/2015
 RBS Group are the 6th largest Banking Group in the World and 2nd in Europe
 The RBS group spans banking, financial services, investment management and
insurance in the UK, Europe, Asia and the US
 We have a presence in 140 countries through a network of 3000 partner and
correspondent banks
 Team of 19 Trade Finance specialists operating across the Midlands
 RBS is committed to providing UK processing of UK customers’ international services
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Managing Risk - The Risk Ladder
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High Risk
Open Account
Exporter
Documentary Coll’n
Letter of Credit
Cash in Advance
Low Risk
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Managing Risk - The Risk Ladder
High Risk
16/07/2015
Low Risk
Open Account
Exporter
Documentary Coll’n
Importer
Letter of Credit
Cash in Advance
Low Risk
High Risk
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Payment in Advance
16/07/2015
 Exporter receives payment and then ships goods
 May be practical requirement to manufacture before payment
received
 May accept partial payment before shipment
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Letter of Credit - Documentary Credit
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 Exporter receives guarantee from overseas buyers bank that they
will pay provided the exporter produces certain documents on time
 May be ‘confirmed’ by UK Bank
 Normally ‘irrevocable’ and can be ‘transferable’
 Onus is on exporter to comply with terms of Credit
 Subject to Uniform Customs & Practice
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Documentary Collection
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 Documents are controlled via the Banking system but it is not a
guarantee of payment for the Exporter
 Exporter retains the Buyer and Country Risk
 Governed by Uniform Rules for Collections
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Open Account
16/07/2015
 Totally reliant on trust as is the case with most domestic sales
 Cheap and hassle free
 Potential language difficulties
 Debtors can be insured
 Invoice Finance / Factoring can mitigate the risks
 Credit Insurance - may not protect against refusal to pay
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Debtor Finance - What is it?
16/07/2015
 Provides services linked to the client’s sales ledger
 Funding up to 90% against the value of the invoice as soon as it
is raised, with easy access to the invoice finance facility via
software.
 Collections (if required), using a dedicated in-house team,
including the use of multi-lingual credit controllers to help collect
overseas debts
 Protection through Bad Debt Protection service, available for
both domestic and overseas debtors
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Debtor Finance - Who uses it?
16/07/2015
 In excess of £10Billion funds advanced in the UK
 In 10 years this has grown over 400%
 Over 40,000 businesses
 88% of funding is to companies with £1m T/O or more
 Export factoring has grown 23% in last year
 Export Invoice Discounting has grown 38% in last year
 23% increase in number of companies funding export via
invoice finance
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Export…Factors Chain International Option
16/07/2015
 FCI is a global network of leading factoring companies, whose common aim is to
facilitate international trade through factoring and related financial services.
 FCI's mission is to become the worldwide standard for international factoring.
 FCI helps its members achieve competitive advantage in international trade finance
services through:
 A global network of first-class factoring companies
 Modern and effective communication systems, to enable them to conduct
their businesses in a cost-efficient way
 A reliable legal framework to protect exporters and importers
 Standard procedures, aimed at maintaining a universal quality
 A package of training programs
 Worldwide promotion aimed at positioning international factoring as the
preferred method of trade finance
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FACTORS CHAIN INTERNATIONAL
16/07/2015
FCI
FCI
FCI
FCI
FCI
FCI
FCI
FCI
FCI
FCI
FCI
FCI
FCI
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Managing Currency Risk
16/07/2015
 ‘Economic’, ‘Translation’ & ‘Transactional’ exposure
 Essential to take action if you have fixed sales prices
 A worked example…
 Buy and manufacture in UK
 Sell to US in USD - sales of say $100k
 March 07 = £52,083 income (GBP/USD 1.92)
 April 05
= £??,??? income
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Managing Currency Risk
16/07/2015
 ‘Economic’, ‘Translation’ & ‘Transactional’ exposure
 Essential to take action if you have fixed sales prices
 A worked example…
 Buy and manufacture in UK
 Sell to US in USD - sales of say $100k
 March 07 = £52,083 income (GBP/USD 1.92)
 April 05
= £50,000 income (GBP/USD 2.00)
 8 cents drop in value of US$ = £2,083 = 4% drop in income
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Managing Currency Risk - the options
16/07/2015
 Invoice in Sterling - competitive?
 Do nothing - high risk
 Sell at Spot and create an overdraft on a currency account
 Fixed Forward Contracts
 Option Forward Contracts
 Structured deals for higher amounts and more complex
transactions eg Vanilla Options
 Best form is Self-Hedging
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How do banks make International Payments?
16/07/2015
 By sending payments through Settlement Mechanisms like CHAPS or by using a
global network of Agent Banks who we hold accounts with - known as Nostro
Accounts
 A Nostro Account is an account held with an Agent Bank abroad, generally in the
indigenous currency of the country of that Agent ”
Royal Bank of
Scotland Group
Debit Customer - USD 100,000
Credit Nostro Ledger - USD 100,000
Message
MT103
JP Morgan Chase
New York
Debit Nostro Statement - USD 100,000
Credit Beneficiary - USD 100,000
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A more complex example
16/07/2015
 Customer instructs RBSG to pay US$100,000 to a customer of Chang Hwa
Commercial Bank, Taiwan
Debit Customer - USD 100,000
Credit Nostro Ledger - USD 100,000
Royal Bank of
Scotland Group
Message
MT202
Debit Nostro Statement
- USD 100,000
Credit US agent Bank
- USD 100,000
Debit Local Settlement A/c
- USD 100,000
Credit Chang Hwa
- USD 100,000
Message
MT103
JP Morgan Chase
New York
Chang Hwa
Taiwan
Settle locally
US agent of
Chang Hwa
Debit US agent Statement - USD 100,000
Credit Beneficiary - USD 100,000
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So what’s this SWIFT?
16/07/2015
“Society for Worldwide Inter-Bank Financial Telecommunications”
 SWIFT is
 an International network
 jointly owned by member banks for the transmission of banking messages
 Each member bank has a SWIFT address known as a Bank Identifier Code (BIC) to
which messages are sent
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Bank Identifier Code (BIC)
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

A BIC is a unique code that identifies a branch of a bank.

It is made up of:
 A 4 digit abbreviation of the SWIFT bank name
 A 2 digit abbreviation of the ISO country code
 The 2 digit SWIFT location code
 A 3 digit SWIFT branch code
Bank Name
Country
Code
Location
Code
Branch Code
N W B K G B 2 L X X X
R B O S G B 2 L X X X
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International Bank Account Number
16/07/2015
Bank Identifier Code (BIC)

An IBAN is a standard way of identifying a bank account in an internationally
agreed format, introduced under European Banking directive to improve
processing
Country
Code
Check
Digits
Bank
Sort Code
Account number
G B 0 2 N W B K 6 0 0 0 0 1 1 2 3 4 5 6 7 8

But IBAN lengths across Europe differ and they aren’t adopted in the US!!

SWIFT BICs and IBANs are mandatory for cross-border customer euro payments
in Europe
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Making it easier for your customers to pay you
16/07/2015
 Quote your IBAN (International Bank Account Number) and Swift
BIC (Bank Identifier Code) on all invoices (NB - NOT your usual
account number and sorting code)
 GB99 RBOS 1234 5612 3456 78
 RBOSGB2L789
 Sticky Labels!
 Consider opening accounts overseas - access to local clearing
systems
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