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Trade Finance in 2020 – Overcoming challenges and accelerating digitalisation

Patrik Zekkar, Global Head of Trade Finance & Working Capital Management at Nordea, looks back on a year like no other as trade and supply chains coped with multiple disruptions due to the ongoing coronavirus crisis.

2020 has been an unexpected and challenging year. In the first quarter we saw the rapid emergence of the COVID-19 pandemic and we moved quickly to support our customers in what was for everybody a difficult and unprecedented time. As national lockdowns were announced, we ensured that we were positioned to support our customers by dispersing our trade finance staff to remote working locations, through close dialogue with our logistics providers and also through daily discussions with our relationship and correspondent banks in order to ensure the continued flow of customer´s trade documents and transactions.

Adapting and responding

As our understanding of the pandemic developed and the impacts of it shifted from the Far East to closer to home, our team of trade experts shared relevant and time sensitive information with our clients and we held a webinar focusing on the interpretation of international trade rules; whether the situation equated to a force majeure and points to consider with regards to logistics and the practical implications of the crisis on the movement of documents and goods. This provided a timely opportunity to answer specific customer queries and provide reassurance and insights.

Throughout this time we remained open as usual, providing a full service whilst working from contingency sites and home. Our trade teams advised city municipalities and other authorities to help structure transactions and provide urgent financing solutions. We also began to ramp up the direct support we were giving to government agencies and departments to help them with the procurement of PPE (Personal Protective Equipment) and other medical equipment. We also reached out to pharma companies and healthcare chains offering them support as well.

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Throughout this time we remained open as usual, providing a full service whilst working from contingency sites and home. Our trade teams advised city municipalities and other authorities to help structure transactions and provide urgent financing solutions.

Patrik Zekkar, Global Head of Trade Finance & Working Capital Management at Nordea

Sharing information with the trade network

As the lockdown situation developed from country to country, our emphasis remained on advising our customers and keeping them updated on changes taking place around the world. We held a series of webinars and published articles and a special trade report with the aim of sharing as much of the knowledge as we could gather with the Nordic business community. Contacting partners to share ongoing intelligence, providing updates and discussing new solutions became a regular weekly occurrence with many of our customers. A number of the practices we introduced are still in place today with direct lines of regular communication strengthened and established.

Nordea has a very good dialogue with all national Export Credit Agencies in the Nordics and our trade teams lent very heavily on those relationships to try and gather as much guidance as possible. Weekly meetings were held with each of the ECAs to channel their guidance and programmes towards our customers and to provide feedback from our side on the developing situation. Subsequently we were able to be out very early in the market to share information with our customers about ECA trade guarantee facilities and the support we were going to give them. Throughout the year we have managed to arrange these facilities and pass on the much needed help to our customers.

Nordea has a very good dialogue with all national Export Credit Agencies in the Nordics and our trade teams lent very heavily on those relationships to try and gather as much guidance as possible.

Patrik Zekkar, Global Head of Trade Finance & Working Capital Management at Nordea

Driving the recovery and supporting digitalisation

For now 2021 offers promising signs that global trade conditions will gradually improve. At Nordea, our number one goal will be to support recovery and growth by moving in tandem with our customers. We will work with suppliers and buyers to support supply chains as they grow and cover orders that may have been held back in 2020 using supply chain financing and leveraging where needed. Growth will also bring a risk element and we will be looking at receivables programmes to both mitigate risk and free up cash. Our trade experts will also help our customers expand into new areas of business and new markets.

One thing the crisis of 2020 has taught us is that digitalisation is no longer optional for both our customers and Nordea to further strengthen resilience. The adoption of new digital trade technologies is expected to continue at a rapid pace. The move to fully digital and decentralised platforms like we.trade in order to exchange digitised trade instruments such as guarantees, electronic bills of lading or letters of credit, will continue to replace paper trade methods that have stayed the same for many years. Our new year’s promise is to continue to drive the digitisation of trade and supply chain management.

One thing the crisis of 2020 has taught us is that digitalisation is no longer optional for both our customers and Nordea to further strengthen resilience. The adoption of new digital trade technologies is expected to continue at a rapid pace.

Patrik Zekkar, Global Head of Trade Finance & Working Capital Management at Nordea

Catch up with some of the highlights from this year’s Trade and Supply Chain related publications:

How will coronavirus transform supply chains?

Trading patterns, supply chains and market demand have all been heavily affected by the sudden shock of coronavirus and the associated lockdowns implemented around the world. As economies slowly begin to recover, it remains to be seen how extensively sourcing and production processes will change to strengthen supply chain resilience.

Read the article here.

Nordea’s Working Capital Study 2020

Nordic companies have been heavily affected by COVID-19. When comparing 2020 second quarter results to 2019 second quarter the study finds that Nordic companies’ revenues have decreased with 7%. In addition to revenues operating profits are struggling as well, while net working capital levels are increasing. The increasing level of working capital is mainly caused by higher inventory levels in relation to sales.

When looking further into working capital performances, it is evident that low levels of net working capital support a higher Return on Capital Employed. Over the analysed period 2016–2019, with decreasing EBIT margins, on an aggregated level companies have been able to improve working capital which has mitigated the decrease in ROCE. Within the sample there are major differences between the performances and the study elaborates on best and worst performers across the sample.

Read the Working Capital report and accompanying article here.

Nordea’s Overdues Report 2020

Nordea’s Working Capital Management Advisory team analysed the 2018 and 2019 annual reports of 124 listed Nordic large cap companies in order to study the share and volume of overdue payments of accounts receivables. With a total aggregated amount of EUR 18.5 billion in overdue payments for the 124 companies included in the survey, the level of receivables exceeding the defined payment terms amounted to 22% of total accounts receivables.

The survey showed some differences between industries, with the ratio between overdues and accounts receivables varying from 15% to 36% depending on the sector. Industrials and Telecommunications proved to be the sectors with the highest late payment ratios. Consumer Goods and Utilities were the best performing sectors, receiving around one sixth of total payments later than the agreed payment terms.

Read the Overdues Report and accompanying article here.

How can corporate treasuries fund digitalisation?

Technology is changing fast and it’s very disruptive. One of the major pressures a treasury faces is staying up to speed with which solutions are available, who the major players in the market are, and how new solutions can help the company with its strategic objectives. Many of the costs and expenses incurred will be ongoing; and this means that effective working capital management is more important than ever. In this report we looked at how treasuries can free up the funds and resources to keep their businesses at the forefront of innovation.

Read the article here.

 

To hear more about robust supply chains at Nordea write to Richard at Richard.Hayes@nordea.com.

Contact your Nordea Trade Finance advisor for further assistance or find out more about we.trade here.

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