deutsche bank_fi bulletin issue no 10

Trade Finance for Financial InstitutionsBulletin

GLOBAL TRANSACTION BANKING

June 2010, Issue No 10

Dear Readers,

We hope this newsletter reachesyou before you head off on yourmid-year vacation and that thecontent provides you with somefood for thought during thesummer!

In recent weeks, there has beenconsiderable media attention onthe economic problems of variousEuropean nations. Despite thisbackdrop, we still expect overallgrowth in global trade in 2010. Ourkeynote macroeconomic articledescribes where export levels areparticularly strong and providessome indications of when we mayexpect to reach pre-crisis levelsagain.

In the background, the WorldTrade Organisation (WTO) and theInternational Chamber ofCommerce (ICC) are trying tosmooth out potential "systemicobstacles" to the growth of trade.These obstacles include heavy-weighted capital requirementsimposed on banks for tradeobligations, or sanction clauses inLetters of Credit. We have twoarticles on initiatives underway toovercome these challenges.

Speaking of the ICC, its revised setof rules for demand guarantees,URDG 758, will be available to themarket from July 1. In thisnewsletter, we outline theimprovements.

In our regular section highlightingour trade presence globally, wefeature the recent opening of ourAbu Dhabi Branch and our closelinks with Nigerian banks.

Finally, our recent business growthhas necessitated a further increasein headcount within our TF-FI teamand I was pleased to welcomeeight high-calibre new colleagueswho will enhance our trade offeringto you.

Enjoy the summer and we lookforward to working with you!

World trade heading fordouble-digit growth in 2010

World trade is still experiencinga mixed recovery aftercollapsing by nearly 13% in2009. The emerging marketshave seen external trade pick upstrongly and in some casesrapidly, unlike the developedeconomies. In a few instances,the export performance ofemerging markets is close orabove pre-crisis levels.

World trade is closely linked to thehealth of the global economy; itusually fluctuates more sharplythan global GDP, which is fairlystable. When world trade slumpedby around 20% during the winter

of 2008/2009, many of the world’smajor economies also fell into theworst recession since World WarII. Countries and regions such asChina, Japan and Eastern Europe– hitherto virtually uninvolved in thefinancial crisis – were hit by asevere drop in economic activity.

The slump in demand in keymarkets was partly to blame, butthe much more stringent conditionsfor financing global merchandisetrade, in the wake of the Lehmanshock, also played a part.

Learning from history

Fiscal stimulus packages aroundthe world helped to cushion theimpact of the deep recession.Moreover, the ultra-expansionarymonetary policy of the centralbanks also contributed to theeconomic rebound in the course of2009. Fortunately, monetary andfiscal policies did not focus tooheavily on the respective domestic

Peter KnodtHead of TradeFinance, [email protected]

Jochen MoebertAssistant Vice PresidentDB [email protected]

mailto:[email protected]


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markets. As beggar-thy-neighbourpolicies had been widespreadduring the Great Depression of the1930s, fears arose during thefinancial crisis that history wouldrepeat itself and national economicpolicy would be pursued to thedetriment of other countries andworld trade. Ultimately, themeasures taken by thegovernments back then not onlythrottled world trade but alsoworsened the economic situationat home. These lessons from thepast were part of the reason for themuch greater willingness tocooperate internationally in thecurrent crisis. Major central bankscoordinated efforts to ensure aworldwide supply of US dollars,and the leaders of the G20governments met for their firstsummit. Thanks to expansionaryeconomic policy and internationalcooperativeness, world trade hasrecovered unexpectedly rapidly(+16% since Q2 2009).

Resurgence in Asia

The recovery has been particularlypronounced in the emergingmarkets. The latest monthly dataon exports in many regions faroutstripped the year-earlierreadings, though this is of coursepartly attributable to the low base.The rapid recovery in Asia isespecially impressive. With itshuge fiscal packages, Chinaboosted not only its own economybut also intra-Asian trade. As aconsequence, total export trafficfrom a host of Asian countries,such as Japan, Indonesia,Malaysia and Taiwan, grew at adouble-digit pace towards the endof 2009. China’s enormousdemand for goods helped fill thegap that the slump in internationaltrade had caused in the countriesof Asia. This is documented byJapan’s export figures. In January,Japan’s exports to China jumpedby 80% yoy and thus returnedclose to pre-crisis levels. Japaneseexports of chemical and

automotive products to China inparticular nearly doubled inDecember in comparison with thepre-year figures. Also, Japaneseexports to the US, partly due to thelow pre-year levels, increased by24% (yoy).

Given the current dynamics of therecovery, Asian exports have eventopped the record volumes of thepre-crisis years in the monthsahead. During 2010, other growthregions such as Latin America andAfrica/Middle East may alsosurpass the record volumes of pre-crisis years. Central and EasternEuropean economies were not hitby the global crisis until relativelylate. For this reason, after astabilisation phase lasting 8months, export growth there hasrecovered not before year-end2009. The current exports aretherefore 25% below the pre-crisislevels. The major economies makea greater contribution to worldtrade than the emerging markets(total share of the developedeconomies is 67.1% – of which:euro zone 28.9%, US 18.7% andJapan 5.8%). Despite the incipientrecovery, the developedeconomies will not return to theirpre-crisis levels again for severalyears. If the exports of thedeveloped economies grow at anaverage rate of around 6% p.a.(1991 to 2007), the pre-crisis levelwill not be reached again until2013.

Forecasts

For world trade as a whole, theIMF forecasted expansion of 5.8%in 2010 (World Economic Outlook,January 2010). This forecast canbe regarded as prettyconservative. In fact, it even fallsshort of the long-term average forworld trade (roughly 7.5% basedon 1991 to 2007). In addition,world trade normally increases attwice the pace of global economicexpansion. With the IMF currentlypredicting global GDP growth of

3.9%, this would be more inkeeping with world trade growth ofclose to 8%. Higher growth in 2010is also implied by the growthoverhang developing since mid-2009 which, because of the sharpslump in early 2009, now totalsaround 5%. Last but not least, themacroeconomic environmentshould also give world trade afurther boost. The majoreconomies have passed the troughof recession and many indicatorssuch as Purchasing ManagerIndexes (PMIs) and export orderspoint to further growth potential forthe global economy and worldtrade. All things considered, worldtrade should expand at a double-digit rate in the current year.

WTO survey showsconstraints on trade financeare hampering the recoveryof global trade

A recent article on Reuters,which names Deutsche Bank asone of three leading players inthe trade finance sector,documents a surveycommissioned by the WorldTrade Organization (WTO) andconducted by the InternationalChamber of Commerce (ICC)that shows that the supply oftrade finance remainsconstrained.

As a result, said Reuters, leadingtrade finance banks are increasingpressure on the G20 to easeregulation in order to ensure thatglobal commerce continues torecover. Indeed, the survey has

Ulf-Peter NoetzelDirector, Trade Finance,Financial [email protected]


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also highlighted concerns thatsome regulators may not berecognizing the less risky nature oftraditional trade financeinstruments.

World trade volumes contracted by12.2% in 2009 and, whileeconomists now believe that ashortage of trade finance onlyaccounted for a small part of this,the availability of these instrumentsat an affordable price isacknowledged as being a keydriver of economic recovery. Andmany practitioners are taking theview that the current Basle IIaccords on capital adequacy donot recognize shorter-term – andhence less risky – nature of mosttrade finance instruments.

As the Reuters’ article points out,default rates in trade finance arelower than in many other forms ofcredit – a crucial fact whenassessing the risk of trade financeinstruments. Indeed, the ICC andAsian Development Bank arecurrently building a database inorder to document the lowerdefault rates and make the case toregulators that trade financeinstruments need to be givenspecial consideration.

New URDG 758 liftingGuarantee business to thenext level

The revised Uniform Rules forDemand Guarantees (“URDG758”), will come into effect onJuly 1 2010. The revision createsa new set of independentguarantee rules for the comingyears. The rules are designed tocreate more efficiency, clarity,

transparency and to reduce thecomplexity for all parties whenworking with applicants,beneficiaries and betweenfinancial institutions.

Background

The new URDG publication willreplace the URDG 458 which wereimplemented in 1992. The latterset of articles formed the firstattempt by the InternationalChamber of Commerce (ICC) tocodify independent guaranteepractice around the globe. Overthe years, URDG 458 proved to bean accepted and recognized partof worldwide guarantee business.However, after a period of 17years, the need arose for draftingadjustments, clarifications and forexpanding the scope. A revision ofthe original rules was launched in2007, conducted under the aegisof both the ICC BankingCommission and the ICCCommission on Commercial Lawand Practice.

The ICC Task Force onGuarantees acted as aconsultative body to a DraftingGroup that produced fivecomprehensive drafts during thetwo-and-a-half year revisionprocess. Each draft was submittedfor review to the ICC nationalcommittees; over 600 sets ofcomments from a total of 52 ICCnational committees were receivedand thoroughly examined. Thosecomments were instrumental inshaping the new rules.

Deutsche Bank played animportant part in the revision withone of its senior guarantee expertsserving as a member of the ICCdrafting group. This is reflective ofour bank’s significant role in globalguarantee business with a marketshare globally of “guarantees sent”at around 4%, based on SWIFTMT 760 statistics.

Culmination of years of work

The resulting URDG 758 were

Visit Deutsche Bank’s Trade Finance FI TeamSibos 2010, Amsterdam, 25 – 29 October,

Booth A 240You are also invited to our “Happy Hour” at the Booth on

Tuesday, 26 October, from 16:30

Ulrich BenzDirectorProduct [email protected]


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Recent Awardsadopted by the ICC ExecutiveBoard in December 2009.

The new rules apply to anydemand guarantee or counter-guarantee where incorporated byreference in the text. Theytentatively can also apply as tradeusage or by implication - from aconsistent course of dealingbetween parties to the demandguarantee or counter-guaranteewhere so provided by theapplicable law.

Improvements

The revised URDG are aimed tobe more creative and clearer, moreprecise and more comprehensivethan the old URDG, thus improvingtheir worldwide acceptancebetween commercial partners inguarantee business.

Clearer - URDG 758 adopt thedrafting style of ICC’s universallyaccepted Uniform Rules forDocumentary Credits by bringingtogether the definitions of terms inone article.

More precise - Some standards inURDG 458 left a margin forindividual interpretation. This wasparticularly true for the terms“reasonable time” and “reasonablecare”. The new URDG haveexcluded all imprecise standardswith an aim to foster certainty andpredictability.

More comprehensive - URDG758 cover important practicespreviously omitted, such as:

The advice of a guarantee Amendments Standards for examination

of presentations Partial, multiple and

incomplete demands Linkage of documents Transfer of guarantees Full treatment of counter-

guarantees

Innovative - A number of

innovations, as a result of thedevelopment of practice and theneed to avoid disputes, feature inURDG 758. An example is the newrule that proposes a substitution ofcurrencies when payment in thecurrency specified in the guaranteebecomes impossible.

The “URDG 758 packageapproach” - The new rules areaccompanied by a modelguarantee and counter-guaranteeform. Experience shows that acomprehensive ready-to-usepackage that combines both therules and model forms is moreconducive to harmonisedpractices.

What matters most

Clear drafting is the linchpin ofsuccessful international demandguarantee practice. Using the newURDG 758 model guarantee formcan level the playing field andavoids misunderstandings. Assuch, it will hopefully significantlycurb the tendency in recent yearsto re-characterise demandguarantees as accessorysuretyships – or the reverse. Theembedded model guarantee shallalso give guidance to allparticipants in guarantee businessto focus on the essentials as far asthe content of a guarantee isconcerned. It clearly aims toreduce excessive wording and

“multi page” guarantees which aretime-consuming to handle and tomanage for all counterparts.

In summary, the new URDG 758have definite advantagescompared to the old rules.Deutsche Bank as one of theleading banks in global guaranteebusiness will support and assist allits partners in business, corporateclients as well as financialinstitutions. In particular we willpromote all efforts to makeguarantee wording clearer andshorter and to reduce contents tothe necessary, thus leveraging thenew URDG 758 to gainingefficiency and standardisation.

ICC releases guidelines onsanction clauses in traderelated products

Background

Over the last few years, bankshave increasingly includedsanction clauses in trade relatedtransactions (letters of credit,documentary collections and

Daniela HinkensDirectorOperational [email protected]

No.3 Best Global Trade Finance ProviderNo.1 for Western Europe, Central & Eastern EuropeNo.2 for North & Central America, South AmericaNo.3 for Asia PacificEuromoney Trade Finance Survey, Jan 2010

Best Transaction Bank – IndiaBest Transaction Bank - PakistanBest Transaction Bank - Sri LankaBest Trade Finance Bank – PakistanBest Trade Finance Bank – Sri LankaRising Star Trade Finance Bank - IndiaThe Asset Triple A Asian Transaction Banking Awards, February 2010


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guarantees) due to concernsabout the implications ofsanctions on their ownobligations under thesetransactions. However, banksare putting at risk theirrevocable nature of the creditor guarantee, the certainty ofpayment and the intention tohonour obligations.

Sanctions can be imposed bythe United Nations, the EUCouncil and individual countrieswhich may prohibit dealingswith specific countries, persons,ships, aircraft or goods. Wheresanctions are in place, banksmust comply with them inaccordance with the applicablenational law or regulation in thejurisdiction(s) in which theyoperate. This means large globalbanks are subject to regulatoryor legal requirements that maybe potentially conflicting.

Issues

As no (global) standard for suchclauses exists, clauses may varyfrom:

(i) Informing involved parties about/ seeking compliance with relevantsanctions, or with sanctions basedon internal policy of the issuingbank, up to (ii) giving the issuerdiscretion whether or not to honourthe letter of credit transactions.Issues for banks can at least betwo-fold, in the following exemplaryanalysis only focussing on letter ofcredit business.

(i) No handling / confirming oftransaction: In some countries,such informational ”advice”must be rejected by theadvising bank as (local)legislation prohibits mention of“boycott” or “sanctions” in anytransaction. Other countries -such as Germany - might belegally prohibited to add aconfirmation to letters of creditmentioning specific unilateral

sanctions implemented bysome countries or internalbusiness policies of selectedbanks.

(ii) Reimbursement provisionsof UCP600 at risk: Nominatedbanks that have actedpursuant to their nominationsare uncertain as to whetherthey will be able to obtainreimbursement, this especiallyfor confirmed transactions.

Solution

In March 2010, the ICC BankingCommission Task Force on Anti-Money Laundering has released aguidance paper on the Use ofSanction Clauses for TradeRelated Products (e.g. Letters ofCredit, Documentary Collectionsand Guarantees) subject to ICCRules (the full text of the paper isavailable at:http://www.iccwbo.org/uploadedFiles/ICC/policy/banking_technique/pages/1129%20rev%20Sanctions%20Clauses%20Guidance%20Paper.pdf):

A sanction clause should notcompromise the Bank’scommitment under a transaction towhich it relates, i.e. not bring intoquestion the irrevocable nature ofthe credit or guarantee, thecertainty of payment or the intentto honour obligations. This, clearly,in the understanding that the letterof credit or guarantee and theUCP, ISP or URDG have alwaysbeen subject to the application ofrelevant local law.

Therefore, recommendation ismade by the ICC to refrain fromincluding such clauses intransactions subject to ICC rules.

Due to the potential negativeimpact of such clauses for ourbusiness, Deutsche Bank doesrefrain from including such clausesin its trade-related transactions.

Deutsche Bank Abu Dhabi Branch- Open for Business Now

The opening of its first branch inthe United Arab Emirates’ (UAE)capital, Abu Dhabi has givenDeutsche Bank’s GlobalTransaction Banking (GTB)fresh impetus in the GulfCooperation Council (GCC).The inauguration of the branchin February was marked by theattendance of H.E. SheikhaLubna Al Qasimi, Minister ofForeign Trade, H.E. Sultan BinNasser Al Suwaidi, Governor ofthe Central Bank of the UAE,Werner Steinmueller, DeutscheBank’s Head of GlobalTransaction Banking andmember of the Group ExecutiveCommittee, and many of theBank’s senior representatives inthe region.

In his opening speechSteinmueller emphasised thestrategic importance of the MiddleEast to Deutsche Bank, especiallythe Bank’s regional hub in theUAE. “Our expansion andcontinued growth in the UAE is atestimony to our unwaveringcommitment to the region, and ispart of a strategic vision that haslong recognised the Middle East asan important part of the globaleconomy and financial sector. Weare proud of the contribution wehave made in the UAE to date, andwe look forward to further assistingour clients in the region with theirfinancial needs.”

While the financial crisis had aserious impact on some

Bernd SchuelerManaging DirectorTrade Finance,Financial [email protected]

http://www.iccwbo.org/uploadedFil


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institutions, Deutsche Bank hascome through strongly with regardto its cash management and tradefinance business in the MENAregion. The Bank has recentlybeen a net beneficiary of largecash and trade mandates in theregion, as large corporates seek toensure that they have a globalprovider that has the strength andinvestment power to continuegrowing and developing productsand services to meet the changingneeds of the GCC market place.

Deutsche Bank first set up apresence in the UAE in 1999,with the establishment of arepresentative Office in Abu Dhabi.

The branch opening marks asignificant step in the expansion ofGTB’s global footprintcomplementing Deutsche Bank’sexisting network in the UAE, whichincludes an off-shore branch withinthe Dubai International FinancialCentre, and an on-shore branch,Deutsche Securities & Services.

Initially focussing on GTB productsand solutions, the new branch willspecifically offer its corporate andfinancial institution clientscommercial banking services suchas securities administrationservices, cash and treasurymanagement, including taking non-retail deposits in a number of GCCand international currencies, aswell as the full suite of tradefinance products. This will allowclients to leverage DeutscheBank’s expertise and global reachwhile benefiting from best-in-classplatforms to support their currentand future business needs.

Promoting Trade with Africa's Third Economy

Between February 1 and 5 2010,Deutsche Bank hosted a five-day interactive bankingworkshop at the Oriental Hotel,Lagos, Nigeria for itscorrespondent banks in Nigeriaand the West African sub-region. The workshop was thefirst of its kind to be hosted byDeutsche Bank in Nigeria. It wasattended by more than 250participants representing some30 banks.

The event was hosted by CharlesWeller, Deutsche Bank CountryRepresentative for Nigeria andWest Africa. He welcomedparticipants to the workshop,stating that it demonstratedDeutsche Bank's commitment tothe local market and the growth oftrade in the region.

Deutsche Bank has an unbrokenpresence in Nigeria spanning

some 30 years - we are the oldestforeign FI in the country!

Key facilitators for the workshopwere drawn from various businessdivisions within the bank includingAsset Management (Dr SteffenTotzke, Director), Trade andStructured Finance (PiersConstable, Director) Cross-BorderPayments (Neil Brady, Director),Islamic Banking & Finance(Mohammed Lawal, VicePresident), Foreign ExchangeTrading & Options (Dirk Vereeken,Vice President), Fraud,Compliance and Anti-MoneyLaundering (David Cady, AssistantVice President). The facilitatorsalso had over 30 meetings withsenior management fromparticipating banks at theirrespective corporate headquarters.

Discussions at the meetingstouched on the financial crisis andhow it affects West Africa,product developments, challenges

Seyi SoetanClient ManagerDeutsche Bank [email protected]

left to right: H.E. Sultan Bin Nasser Al Suwaidi, Governor of the Central Bank of the UAE,Werner Steinmueller, Head of GTB, H.E. Sheikha Lubna Al Qasimi, Minister of Foreign Trade


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to AML & corporate governanceand a host of other topical issuesParticipants were particularlyfascinated with the Islamic bankingmodule and the FX4Cash product -two areas where Deutsche Bank iswell ahead of the market.

Adeola Azeez, Deputy HeadDeutsche Bank Lagos, toldparticipants that owing to the hugesuccess and positive feedbackreceived from both participants andfacilitators it is planned to repeatthe event again next year.

Participants speaking after theworkshop commended DeutscheBank's effort in hosting the eventdespite the current economicclimate and the recent shake-up inthe Nigerian Banking industry.Participants stated that thesuccessful hosting of the workshopand the large turnout for eachsession was an indicator ofDeutsche Bank's strength and thegoodwill enjoyed in the market.Others added that it also highlightsDeutsche Bank's commitment tothe growth and development of the

Staff Announcements

Norbert Ackermann has beenappointed asHead of TradeFinance, FinancialInstitutions (TFFI)Country- andCounterparty Risk.Norbert previouslyheaded the Trade

Advisory Team – Central Region inFrankfurt after holding variousroles within the Bank’s TradeFinance organization. With morethan 20 years in Trade Finance hebrings in a wealth of experience tohis new assignment.

market. The event received widecoverage in the local media andthe business flow as a direct resultof the workshop has been good.Whilst other financial institutionsalso offer workshops and seminarsto banks of the region, DeutscheBank was the first to host such anevent 'in country' involving morethan 250 bankers!

With a population of more than 150million people and being one of the

Leveraging his extensive Salesknowledge will not only foster thedialogue between Sales and FI-Risk but also support our growthobjectives. Norbert is a valuableaddition to our Risk team and willstrengthen and proactively drivethe Risk function.

Katrin Freiberger joined the TFFI/-Country andCounterparty Riskteam in May 2010.Katrin willcontribute tofurther strengthenthe team’s effortsin transaction

top 5 oil producing nations globally,Nigeria is not to be ignored.Significant FDI has come in fromEurope and Asia and continues. In2010 Nigeria will celebrate 50years of independence. With thefocus on Cash & Trade, theDeutsche Bank Lagos Office ismore than well placed to assistalso our preferred correspondentbanks around the globe infacilitating trade with Nigeria.

approval and ensure that allstructuring options are considered.Katrin has a degree in Banking &Finance. Besides being fluent inEnglish, she speaks German andRussian and has knowledge ofFrench. Most recently shecompleted the GTB TraineeProgram, where she broadenedher experience in many GTBareas, notably in Trade Finance.Amongst others, she completedtraining in Trade Advisory,Financial Supply ChainManagement and Structured Tradeand Export Finance, as well asCash Management Corporates andCapital Market Sales in Moscow.

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Effective 1st of April 2010,María-DoloresJaime took overher newassignment withinthe TFFI team inDeutsche BankFrankfurt. Doloreshas more than

10 years experience in TradeFinance and joins from DeutscheBank Spain. She has also workedfor the Bank in Belgium. Doloreshas work experience both in TradeServices and Trade Advisory. Shenow works on the FI/Country andCounterparty Risk side andconcentrates on the Americas andLatin America in particular, as wellas Turkey and Western Europe.

Anish Ghosh became part ofthe TFFI team, withresponsibility tocover trade andcash sales to FI'sin Bangladesh.Anish is based inour Kolkata (India)branch. He has

an MSc in Electronics & MBA fromMumbai University. Anish workedin our Trade centre for five yearsand then moved to the BusinessManagement Service Centresupporting MIS & Analytics &specifically the TFFI Asia team onSales Support.

Ratna ( Mia ) Indrakesuma joinedTFFI withresponsibility tocover trade salesfor FI's inIndonesia. Ratnais based in ourJakarta office.Ratna completed

her BA at Richmond University,London & Dipl.Ing from YayasanBina Eksekutif, Jakarta. She hasworked at Deutsche Bank for over14 years, with stints in Tradeoperations for eight years and as aTrade Advisor for two years.

Tran-Dinh Thong joined the TFFIteam withresponsibility tocover trade salesfor FinancialInstitutions inVietnam. He isbased in our HoChi Minh City

office. Thong is a BA in BusinessAdministration from a University inVietnam. Thong joins us from J PMorgan where he was responsiblefor the Trade Finance and CashManagement Sales to FinancialInstitutions. Thong has over 12years of work experience.

www.db.com/[email protected] publication is for information purposesonly and is designed to serve as a generaloverview regarding Trade Finance forFinancial Institutions and related servicesplanned. The general description in thispublication relates to Trade Finance forFinancial Institutions services planned to beoffered to customers as of the date of thispublication (June 2010), which may be

Monika Jacob-Schnitzius hasrejoined our teamfrom ProductManagement inorder to driveBusinessManagementissues in line withour sales

initiatives. She will be workingclosely with the Management andSales team to identify and co-ordinate business opportunitieswith our FI customers.

Furthermore we welcomeMadeleineKanzler. Shesucceeds MarijkjeVervoorst-Klaukewho took absencefrom the team formaternity leave.Madeleine has

joined the Business Managementfunction. With her strongbackground in Operational RiskManagement and Capital MarketSales she will be a valuablecontribution to our team.

Subject to change in the future. The generaldescription of Trade Finance for FinancialInstitutions products and services are in theirnature only illustrative and do not thereforecontain or cannot result in any contractual ornon-contractual obligation or liability ofDeutsche Bank AG or any of its affiliates.Copyright © June 2010 Deutsche Bank AG

http://www.db.com/gtb


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