Presentation on theme: "Trade Finance Innovative solutions for SMEs"— Presentation transcript:
1 Trade Finance Innovative solutions for SMEs Transaction Banking26Sep2012
2 What is Trade Finance Objectives Facilitates cross border and domestic trade flows between buyers and sellersObjectivesMitigate RiskFinancingSettlementBalance Sheet Mgmt
3 International TradeBuyers and sellers exchange goods for payment across national bordersIncludes servicesAlso forms of counter trade where trade is reciprocal and payment is not made across borders
4 Problems SMEs face in International Trade Buyer and seller unknown to each otherLanguage, laws, customs, regulationsTransportation systemsBuyers want time to pay while sellers want immediate paymentTransfer of fundsForeign exchangeTariff barriersPoliticsCountry stability
5 Importance of Contract in Trade All trade transactions are subject to contractual agreement (sales contract) between the buyer and the sellerSales contract should includeMethod of dispatchDocuments requiredSpecification of party bearing the related costsMethods of payment
6 Supplier performance risk Sovereign & Country risk Risks in International TradeBuyer credit riskSupplier performance riskSovereign & Country riskForeign exchange riskMarket risk
7 Working Capital Cycle Raw Materials Stock Period WIP Progress Period Operating CycleBuySellCollectInventory Holding PeriodCollectionRaw Materials Stock PeriodWIP Progress PeriodFinished Goods Inventory PeriodDebtor Conversion PeriodCredit Granted By SuppliersWorking Capital RequirementWhat ties up cash?Increasing assets (inventory holding periods & debtors)Decreasing liabilities.The longer the stock & cash conversion periods the more cash is used.A reduction in credit can lead to crisis and pressure on bank facilities.Page 7
8 Working Capital Cycle for SMEs Cash /CapitalReceivablesRawMaterialWorking Capital CycleFinishedGoodsWork inProgress
9 Structured Trade Products for the whole cycle end-to-end Working Capital Cycle for SMEsOrderL/Cs (Sight/Usance)Preshipment FinanceInvoice FinancingFinancial Gtees./ SBLCsAdvance payment against Proforma InvoiceSalesBills under Export LCOutward CollectionBill/ Invoice DiscountingCheque Purchase/ BOE DiscountFactoringRaw MaterialCash/ CapitalWork in ProgressFinished GoodsReceivablesStock HoldingImport Loans/ Loans Against Trust ReceiptsPreshipment FinanceUsance L/CsPurchase Invoice FinancingLoan Against ImportsWarehouse FinancingFinance against Commodity ReceiptsProductionImport Loans/ Loans Against Trust Receipts (LATR)Preshipment FinanceUsance L/CsPurchase Invoice FinancingLoan Against ImportsStructured Trade Products for the whole cycle end-to-end
10 (1) Delivers /Ships goods Financing Receivables(3) Pay on due date(1) Delivers /Ships goodsBuyerSeller(4) Repays(2a) Submits invoice(2b) FinancesDiscounting BankBorder
11 How is Financing Receivables different? Value Added PropositionsCompared with other traditional lending facilities such as overdraft or short term loans which offer limited funding against receivables, Financing Receivables can advance funds up to 90% of the invoice valueLarge number of buyers covered under the facilityHigher limits are assigned on the basis of :Quality of receivablesUnderlying goods and servicesManagement of the companyOur new credit methodology is a move away from sole balance sheet assessment to focus on your quality of receivables as well as strength of your relationship with buyers11
12 Right ProductAre you selling to many buyers on open account credit terms?Is tied up capital in accounts receivables limiting your growth?Do you deal with credit worthy buyers ?Are you facing a working capital shortage?If the answer to any of these questions is a YES…Financing Receivablescould be your solution
13 Case Study 1Platinum Traders import Mobile Phones from Korea and re-export to GCC countries. The following is the information on their working capitalTotal annual imports are AED 100 M. Goods are purchased four times a year, on the first day of each quarter commencing 1st January. Order for each quarter is AED 25MSuppliers are paid on 30 days D/A basis from the date of AWB/bill of lading Normally it takes 5 days for the documents to reachMonthly sales are AED 10MHalf the sales are on Cash basis and the balance on one-month credit to various buyersAssuming the company wants to finance the working capitalWhat facilities will the Bank propose to the company?How will the Bank structure them?
14 Case Study 2Lucky Star Ltd. manufactures ceramic tiles for exports and domestic sales. The annual sale of Lucky Star is AED 60m. About 70% of sales are exported. On an average it takes 90 days for the company to receive export sales receipt, from the date that shipping documents are availableThe company requires to finance their export salesWhat facilities can the Bank provide to finance their export receivables?
17 DisclaimerThis document has been prepared by Abu Dhabi Commercial Bank PJSC (“ADCB”) for information purposes only. The information, statements and opinions contained in this presentation do not constitute a public offer under any applicable legislation or an offer to sell or solicitation of an offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments. This document shall not be reproduced, distributed or transmitted without the consent of ADCB and is not intended for distribution in any jurisdiction in which such distribution would be contrary to local law or reputation. The material contained in this presentation is intended to be general background information on ADCB and its activities and does not purport to be complete. It may include information derived from publicly available sources that have not been independently verified and inconsistencies between sub-totals and totals due to rounding errors. No representation or warranty is made as to the accuracy, completeness or reliability of the information. It is not intended that this document be relied upon as advice to investors or potential investors, who should consider seeking independent professional advice depending on their specific investment objectives, financial situation or particular needs. Without prejudice to the foregoing, we do not accept any liability whatsoever for any loss howsoever arising, directly or indirectly, from the use of this presentation or its contents or otherwise arising in connection with this presentation. This document may contain certain forward-looking statements with respect to certain of ADCB’s plans and its current goals and expectations relating to future financial conditions, performance and results. These statements relate to ADCB’s current view with respect to future events and are subject to change, certain risks, uncertainties and assumptions which are, in many instances, beyond ADCB’s control and have been made based upon management’s expectations and beliefs concerning future developments and their potential effect upon ADCB. By their nature, these forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond ADCB’s control, including, among others, the UAE domestic and global economic and business conditions, market related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory and Governmental authorities, the impact of competition, the timing impact and other uncertainties of future acquisition or combinations within relevant industries. As a result, ADCB’s actual future condition, performance and results may differ materially from the plans, goals and expectations set out in ADCB’s forward-looking statements and persons reading this document should not place reliance on forward-looking statements. Such forward-looking statements are made only as at the date on which such statements are made and ADCB does not undertake to update forward-looking statements contained in this document or any other forward-looking statement it may make.