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Trade Finance Innovative solutions for SMEs

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Presentation on theme: "Trade Finance Innovative solutions for SMEs"— Presentation transcript:

1 Trade Finance Innovative solutions for SMEs
Transaction Banking 26Sep2012

2 What is Trade Finance Objectives
Facilitates cross border and domestic trade flows between buyers and sellers Objectives Mitigate Risk Financing Settlement Balance Sheet Mgmt

3 International Trade Buyers and sellers exchange goods for payment across national borders Includes services Also 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 other Language, laws, customs, regulations Transportation systems Buyers want time to pay while sellers want immediate payment Transfer of funds Foreign exchange Tariff barriers Politics Country stability

5 Importance of Contract in Trade
All trade transactions are subject to contractual agreement (sales contract) between the buyer and the seller Sales contract should include Method of dispatch Documents required Specification of party bearing the related costs Methods of payment

6 Supplier performance risk Sovereign & Country risk
Risks in International Trade Buyer credit risk Supplier performance risk Sovereign & Country risk Foreign exchange risk Market risk

7 Working Capital Cycle Raw Materials Stock Period WIP Progress Period
Operating Cycle Buy Sell Collect Inventory Holding Period Collection Raw Materials Stock Period WIP Progress Period Finished Goods Inventory Period Debtor Conversion Period Credit Granted By Suppliers Working Capital Requirement What 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 / Capital Receivables Raw Material Working Capital Cycle Finished Goods Work in Progress

9 Structured Trade Products for the whole cycle end-to-end
Working Capital Cycle for SMEs Order L/Cs (Sight/Usance) Preshipment Finance Invoice Financing Financial Gtees./ SBLCs Advance payment against Proforma Invoice Sales Bills under Export LC Outward Collection Bill/ Invoice Discounting Cheque Purchase/ BOE Discount Factoring Raw Material Cash/ Capital Work in Progress Finished Goods Receivables Stock Holding Import Loans/ Loans Against Trust Receipts Preshipment Finance Usance L/Cs Purchase Invoice Financing Loan Against Imports Warehouse Financing Finance against Commodity Receipts Production Import Loans/ Loans Against Trust Receipts (LATR) Preshipment Finance Usance L/Cs Purchase Invoice Financing Loan Against Imports Structured Trade Products for the whole cycle end-to-end

10 (1) Delivers /Ships goods
Financing Receivables (3) Pay on due date (1) Delivers /Ships goods Buyer Seller (4) Repays (2a) Submits invoice (2b) Finances Discounting Bank Border

11 How is Financing Receivables different?
Value Added Propositions Compared 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 value Large number of buyers covered under the facility Higher limits are assigned on the basis of : Quality of receivables Underlying goods and services Management of the company Our 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 buyers 11

12 Right Product Are 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 Receivables could be your solution

13 Case Study 1 Platinum Traders import Mobile Phones from Korea and re-export to GCC countries. The following is the information on their working capital Total 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 25M Suppliers 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 reach Monthly sales are AED 10M Half the sales are on Cash basis and the balance on one-month credit to various buyers Assuming the company wants to finance the working capital What facilities will the Bank propose to the company? How will the Bank structure them?

14 Case Study 2 Lucky 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 available The company requires to finance their export sales What facilities can the Bank provide to finance their export receivables?

15 Q & A

16 Thank you

17 Disclaimer This 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.

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