ICC wants banks to embrace modern tools

The International Chamber of Commerce (ICC) says it is vital for the country’s banking sector to embrace modern financial rules and tools to minimise trading risk and support financing services aligned with technology.

ICC is a wing of the International Court of Arbitration that provides a forum for businesses and other organisations to examine and better comprehend the nature and significance of the major shifts taking place in the world economy.

Mr. Emmanuel Doni-Kwame, Secretary-General, ICC Ghana, told this to B&FT in an interview on the sidelines of a two-day training programme in Accra, aimed at helping participants understand how the new ICC Banking Commission’s Bank Payment Obligation (BPO) rules or products that are be rolled-out in the coming years will operate in practice.

The training programme was attended by corporate credit and risk managers, corporate treasurers, bankers, insurers, consultants, vendors active in trade and supply chain finance and all others interested in new developments in the area of trade finance.

Mr. Doni-Kwame observed that Ghana is currently developing into a financial hub, and the country needs to keep up with the pace in order not to be left behind in the global financial systems.

He said: “Modalities in doing business in Ghana are quite different and most transactions are going electronic. Ghanaians are involved in international trade and we all use various documents like Letters of Credits (LCs), which other countries have moved beyond.

“There are a number of international banks operating in the country presently, and as the country progresses there is need to be up-to-date with all the international financial standards.”

Mr. Pavel Andrle, International Trainer & Consultant with ICC, explained that the BPOs are the first-ever uniform rules and payment obligations which are 21st century standard in the supply chain finance that governs transactions worldwide.

“The ICC Banking Commission views development of the bank payment obligation rules and standards as a strong foundation for banks to provide modern risk and financing services aligned with today’s technology.”

He said the BPOs enable banks to mitigate the risks associated with international trade to the benefit of both buyers and sellers. They enable flexible financing propositions across the supply chain, from pre-shipment to post-shipment.

The uniform rules, he said, can be viewed as an electronic letter of credit, and are alternative means of settlement in international trade.

“It provides the benefits of a letter of credit (LC) in an automated environment and enables banks to offer flexible risk-mitigation and financing services across the supply chain to their corporate customers.”

Data from the World Trade Organsisation shows that trade growth in 2012 fell to 2% from 5.2% in 2011, and is likely to remain at a sluggish 3.3% in 2013 due to the ongoing economic crisis and slow growth in developed economies.

It also states that world trade will grow by 73% in the next 15 years, and companies across the world will increase their trade activity by a combined 4.1% between 2011 and 2025. Merchandise trade volumes in 2025 will hit US$48.5trillion, compared to today’s US$27.2trillion.

Traditional trade finance instruments are characterised by high cost due to manual processing, frequent discrepancy handling, and liquidity pressures.

On the other hand, a BPO’s automated processing and matching reduces the processing cost and enables banks to offer a competitive rate to corporates for the BPO transaction. Timely delivery of matching reports on payment obligations and invoices enables corporates to have quicker access to liquid resources.

Explaining the benefit, Mr. Andrle said for a BPO transaction the bank will be involved in all stages of an open account transaction, starting from the initial baseline submission, and it will reduce the overall operational cost associated with the trade transaction.

He stated: “Banks can also offer value-added services like financing, cash forecasting, liquidity and working capital management to their corporate clients based on underlying trade transactions and reporting.

“Large banks can also offer white-label processing tools for the banks that would not like to build their own BPO processing tool,” adding that a BPO will also benefit corporate operationally as there is no manual processing -- like document creation, verification, validation, tracking, and reporting.

“It will also result in significant cost savings for the corporate through early access to pre- and post-shipment finance needs, and risk mitigation as the undertaking is between the buyer and a seller bank.”