GENEVA, March 20 (Reuters) - French bank BNP Paribas is planning to launch a fund this year to drum up new liquidity for trade finance, Jacques-Olivier Thomann, the managing director of the bank’s Geneva office, said on Tuesday.
Trade finance, traditionally a low-risk and low-return business, is under pressure from the Basel regulations on capital adequacy and from a shortage of dollar liquidity among European banks, which are the biggest lenders.
“There is no doubt that the banks will have to attract funding from new investors,” Thomann told the 2012 Trading Forum commodities trading conference in Geneva. “We may soon see the emergence of a new class of trade finance loan offered to investors.”
Thomann did not elaborate on what BNP Paribas’ new product would look like but said the bank was studying several options, aiming at a triple-A rated asset that could bring new money into the business.
“We have to find the liquidity,” he said. “We’re not the only bank doing that. I had discussions with a number of banks who are doing the same.”
He said BNP Paribas would not be the first to offer investors the chance to invest in a trade finance fund, since Trafigura’s hedge fund arm Galena already has such a product. To read a recent story about Galena, please click
Thomann emphasised that the plan was only aimed at increasing liquidity and BNP Paribas wanted to remain exposed to trade finance risk.
“This is a very important point for investors. We don’t just package something and throw it away.”
Trade finance is short term, but investors normally have a time horizon of 1-3 years, so the bank would continuously put new trade financing loans into the fund, he said.
Although the annual turnover of global trade finance is thought to be $12-14 trillion, partly because of the frequent churn of loans, Thomann said the initial market for funds might be a few billion dollars.
“The potential is huge. That could be much more. That could be $100 billion,” he said.
Last year the G20 asked World Trade Organization chief Pascal Lamy to review the effectiveness of trade finance and he has pointed out the dangers of trade finance drying up, which would raise the cost of funding trade in some of the poorest countries in the world.
“Trade finance is one of the safest, if not the safest, form of finance in this world,” Lamy said in October last year. (Reporting by Tom Miles; editing by Keiron Henderson)