Simon Lay, the Managing Director of FIMBank’s London Forfaiting Co., gives an insight into Forfaiting
What is Forfaiting? Forfaiting is the discounting of trade receivables on a without recourse basis. It is a highly effective finance tool, which allows an Exporter or Seller to grant attractive credit terms to his Buyers without tying up cash flow or assuming the potential risks of late payment or default. It also protects him against adverse movements in interest and/or currency rates during the credit period.
What do you believe makes LFC the best Forfaiting house? Obviously it is great news to receive an industry accolade like this as it re-enforces that our clients are of the opinion that we are providing them with a good service. Of course we believe we are very good at what we do, but it’s nice to hear that others feel the same! It’s hard to pinpoint exactly what makes us different from others. I suppose one of the main factors would be that we have dedicated a lot of resources specifically on Forfaiting and trade finance for a very long time now. Actually we celebrate being incorporated for 25 years in 2009. Just because a company does something for a long time, doesn’t necessarily make them good at it, but hopefully in LFC’s case it does and demonstrates a certain level of commitment to the product, focus on service and to loyalty to our customers. I think this commitment has also helped re-enforce our credentials with our peers.
Another of our strengths is our spread of geographical risk capacity and diversity of our product range. We are not compartmentalised like so many banks, which are limited either to specific regional capacity or focused on either LC’s or loans. I wouldn’t say that LFC is everything to all people, but if it’s trade finance anywhere in the world, we hope that our clients will think of us first.
Of course current market conditions are bringing a much wider variety of transactions back into play. These days we see as many requests for good quality assets as we do for “exotic” risks. This helps give a nice balance to the portfolio. All assets are well priced in the current market as the focus is on structure, risk mitigation and funding rather than price. LFC tries to accommodate all transactions but in the current market we do try to give priority to clients with whom LFC has had a good relationship over a number of years. It makes sense to service those clients who have also supported us with transactions when the markets were flooded with cheap funding, as they were up until this year. We try to build long standing loyal relationships with our clients as we believe this is what will give dividends to both parties in the longer term.
What have been LFC’s biggest achievements over the last 12 months? Possibly the biggest achievements during the turbulent markets of 2008 was continuing to write business when the rest of the financial markets were collapsing around us. One of the benefits of dealing with trade finance is that whilst sentiment for equities, bonds or syndicated loans in emerging markets has been turning sharply negative, trade seems to remain fairly resilient to this turmoil. Of course capital flight, negative perception and falling FDI in many markets has put pressure on local currencies, but as LFC is financing exports as well imports, the pendulum simply swings in a different direction but still provides us with opportunities. Trade finance remains a very important component in driving these economies forward. As a consequence, Forfaiting is once again enjoying the resurgence in popularity it sees every few years. Banks move in and out of the product but LFC’s remains steadfastly focused on driving forward it’s commitment to the business. I think this is an important message which is understood by our clients. We have seen a massive diversity of transactions over the last 12 months ranging from US$50 million Bi-lateral funding deals in Korea to €60,000 LC Confirmations in Benin. Whilst some deals are driven more by liquidity and others by risk mitigation, LFC tries to position itself to meet both needs.
“Many major banks are sitting on substantial liquidity and shrinking loan portfolios, but market sentiment remains so negative that few are prepared to use this liquidity for new transactions. This is compounded by the flow of bad news coming out almost daily from both emerging and ‘emerged’ markets, and from such diverse sectors of industry and geography that all previous assumptions of what were once thought of as ‘safe havens’ are being challenged. In these conditions it is difficult to be objective, to step out of the highly charged environment in which bankers now find themselves working and to form measured opinions about where true value lies. However, for financial institutions with courage, conviction and insight, this is a time of great opportunity. If your organisation has the resources and willingness to lend, it can now enjoy margins and a diversity of asset risks that have not been seen for many years, if at all. Structures are now tighter, repayment terms shorter and competition much less fierce, which are all advantages. So, know your client, know their business and know their clients! Supply chain financing is back again and if the business fundamentals are good and simply lacking cash flow, a little liquidity will go a long way.” If you can support your clients, customers and suppliers in these dire market conditions, you can not only forge stronger business relationships that will profit your company in the future, but also benefit from enhanced security and more profitable transactions.
