2013/FMP/WKSP4/003 Session: I A Perspective of Trade Finance by Bank of Tokyo- Mitsubishi UFJ Submitted by: Bank of Tokyo-Mitsubishi UFJ Workshop on Trade Finance Lombok, Indonesia 1 July 2013
A Perspective of Trade Finance by BTMU July 1, 2013 Tateya Harada General Manager Asian Transaction Banking Office Transaction Banking Division
Characteristics of Intra-Asia Trade Rapid Goods Delivery Documentary Trade Diversification of Trade Flow 1
L/Cs in Asia-Pacific Source: BCG workshop with SWIFT, June 2012 Source: SWIFT Statistics (2012) 2
Corporate Demands Importer Demands Reduce number of L/C transactions Accelerate A/P reconciliation Reduce settlement period to support suppliers Trade portal platform with end-to-end service Reduce number of L/C transactions Exporter Demands Reduce costs related to L/C transactions Reduce document handling workload Increase efficiency of trade operations Digitize trade flows Trade portal platform with end-to-end service 3
Trade Product Portfolio & TSU BPO Trade Product Portfolio Letter of Credit Trade Service Utility (TSU) TSU Payment Service With Bank Payment Obligation (BPO) PO Shipment Document Document against Payment IMPORT Bank + EXPORT Bank TSU Payment Service Without Bank Payment Obligation (BPO) Payment Buyer Seller Open Account 4
TSU Payment Service with BPO Electronic data management Automated data matching Simplified documentation Shortened transaction period Reduced discrepancies Reduced risk of bank error to spot discrepancies Real time visibility Payment on time after electronic matching Streamlined operation Improved and faster traceability BPO BPO based financing for importer and exporter 5
Key Features of TSU Payment Service with BPO Subject Main function Description Bank guarantees the payment of the importer Payment Trigger Successful data matching on SWIFT TSU system Type of risk to mitigate Buyer s credit risk, insufficient fund risk and payment risk Type of Obligation Primary Obligation Documents Originals are exchanged between importer and exporter. Rules ICC Uniform Rules for Bank Payment Obligations (URBPO) Additional services Fees - For the importer, credit based on BPO - For the exporter, Bills Bought with BPO Similar as L/C 6
Shortening the Transaction Time Reducing processing time from 2 weeks to 3 days Application Doc check Doc shipping Doc check Payment 10-15 days on traditional L/C Application TSU matching Payment 3 days on TSU/BPO transactions Buyers can pay suppliers earlier than before Buyers can reduce inventory Suppliers can reduce discrepancies Buyers and suppliers can improve working capital 7
Key Benefits for Corporates Suppliers Easier trade and payment operations Earlier funds collection and FX risk elimination Reduce discrepancy fees and bank fees Improve transaction visibility and traceability Improve reconciliation of account receivables Buyers Ability to negotiate better trade terms with suppliers Improve reconciliation of account payables Improve working capital Streamline operation and reduce cost Reduce inventories 8
Benefits for Banks Cost and revenue Reduce cost of document handling Reduce cost for skilled human resource Open door to new business opportunities Shorter transaction time Automated solution No original document handling and no checking Easier and faster operation Strengthen core relationships Provide solution to improve working capital Provide easier and faster operation Meet the market requirement 9
Contracts and Rules Buyer Purchase order: BPO is one option of payment conditions Seller TSU Payment Service Agreement BPO Agreement TSU Payment Service Agreement BPO Agreement No additional bilateral agreement is required Buyer s bank TSU Rulebook in the TSU Service Description Seller s bank Correspondent banking contract 10
BPO Limitations Need for more correspondent banks ready on BPO ICC URBPO rule effective from 1 July 2013 B/L does not go through bank (*), therefore BPO presents the same risk as in 1/3 B/L directly sent to importer or Surrender B/L in L/C transactions Credit line of buyer is the same as for L/C but are affected for a shorter period (*) Original documents are not sent to the bank because the BPO instrument is about electronic data and not paper documents. This point is covered by clauses in the bank terms and conditions. 11
URBPO as a Global Standard Rule SOURCE: International Chamber of Commerce HP 12
BTMU Challenges & Strengths Challenges Strengths Sustainable growth in trade business Shift from L/C to open account New range of open account solutions Process efficiency without losing business information Large global network Strong credit rating Pioneer for TSU BPO business Capability for TSU based services 13
BTMU Locations Offering BPO-Based Services (status at 31 May 2013) Live Testing Target locations in 2013: Asia and Latin America BEIJING GUANGZHOU SHANGHAI TOKYO ARGENTINA CHILE BRAZIL HONG KONG TAIWAN THAILAND PHILIPPINES MALAYSIA INDONESIA SINGAPORE AUSTRALIA 14
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