Supporting Trade in a time of crisis

Third , with respect to digital payments and settlements. Having instant payments flowing globally as part of the trade settlement process, as well as part of an integrated supply chain finance solution through electronic trade platforms, has made an enormous difference to companies on both sides of a trade. This is especially true for sectors suffering short-term gaps in their supply chain or who need to provide funding to suppliers quickly by onboarding them electronically, or those suffering liquidity issues due to crisis- related volatilities in payment patterns. Sectors particularly at risk of a liquidity shortfall include energy, consumer, hardware and industrials, with 27%, 26%, 24% and 22% of firms in those sectors respectively at risk 3 . So no matter what the physical supply chain obstacles, the operational backbone underpinning trade has weathered the storm, highlighting the value of many banks’ (including Citi’s) investment in digital processes. Further proof, if needed, comes in the many enquiries we are receiving from companies that had previously resisted the move towards paperless trade. For trade to keep moving, they now realise digitalisation is key. Financial backbone Yet digital tools form only one part of the story. Finance is another element, with both corporates and their supportive financiers (perhaps local or specialist lenders) needing to also show balance sheet resilience during these difficult times. For instance, during this crisis some banks have experienced significant drawdowns of credit facilities, resulting in a liquidity crunch and balance sheet constraints that may impede their appetite for future funding. In this respect, “scale matters”. Larger lenders like Citi have by-and-large been able to provide the required continuity of funding – sometimes helping bridge funding gaps due to supply chain constraints. And that can include requests for funding from smaller suppliers – some joining supply chains for the first time as part of a critical need. It is in such circumstances that the larger lenders can offer both the scale and speed needed to prevent disruption. Again, at the other end of these transactions, digital platforms can play a role, in this case as an engine for the distribution of trade assets among investors. While major banks may sponsor the platforms, they can include a range of funders – including peer group banks, challenger banks, non-bank FIs and private investors. This works not only for the companies, but also for the major banks. Having access to digitalised investors with pre-agreed lines able to participate in trade financing allows for both scaling up, with respect to the size of facilities, and for the optimisation of assets, all while reducing the risk of funding disruption. For example, with some banks experiencing balance sheet stresses, credit limits may be triggered that would have previously resulted in a decline or even the pulling of facilities. Such platforms, meanwhile, allow alternative investors to be brought in to provide seamless liquidity to the supply chain.