Supporting Trade in a time of crisis

Overcoming challenges The business environment remains challenging. Consumption has decreased and investments put on hold. Meanwhile, inefficiencies in supply chains have resulted in price volatility for certain goods, or with goods sourced from unfamiliar sources. This is affecting the cash flows and profitability of industries across multiple sectors which is triggering credit downgrades that are negatively affecting access to funding. Of course, some sectors are more impacted than others – with aviation, shipping, travel, hospitality, fashion and luxury goods particularly hard hit. For example, car registrations fell significantly in April, with France and Italy reporting decreases in sales of 88.8% and 97.5% respectively 4 . Any recovery will take time and will require government help. Certainly, governments and central banks have stepped in – most introducing helpful measures such as easing restrictions on commercial banks, cutting interest rates and increasing loans to states and businesses 5 . Monetary and fiscal levers that have been widely used include central bank liquidity support, central bank swap lines, the use of capital and liquidity buffers regarding financial policies for banks, and state loans or credit guarantees to improve access to capital. There are also schemes that allow banks to offer moratoriums on loan repayments. Citi is playing its part: for instance, by signing an agreement to incorporate UK Export Finance (UKEF – the UK export credit agency) guarantees into the supply chain structure, thus incorporating export credit agency (ECA) support into the Supply Chain Finance Program. As with the global financial crisis of 2008, ECAs will need to become more active, expanding their facilities to include small- and medium-sized enterprises (SMEs). That said, pre-COVID structures aimed specifically at reinforcing supply chains should allow for expansion down the food chain (benefitting SMEs) rather than having to construct entirely new arrangements. Working capital ECA guarantees, for instance, have been launched by countries including Denmark, Sweden, France and the UK 6 . Development banks, meanwhile, need to rekindle their trade finance and shared-risk facilities (A-B loans) and increase their guarantees. Hopefully, such a multi-pronged approach will allow for a temporary fix until the recovery can take hold, although longer-term support may ultimately be needed. Increased checks to mitigate fraud Another issue to emerge as a result of the pandemic has been the increase in fraud, driven by the unfamiliar environment and supply chain volatility. While previous crises have also produced similar spikes in incidents related to bank and loan fraud, money laundering and corruption, we are, again, lucky to have such advanced digitalisation as a defence. Nonetheless, increased awareness and the undertaking of incremental checks – including the cross verification of data points – is a must. An example of this is the way in which banks are implementing specific processes to assess new suppliers of medical equipment to determine if they are genuine transactions. Digital firewalls are the answer, with password- protected, digital identities established. Furthermore, through deep, digital know-your-client (KYC) checks, banks can establish the genuineness of new client counterparties. This can include using AI learning tools that access trade registers, recognise the legal entity of the company and identify their track record. Citi continues to invest in technologies that use AI to detect and help prevent such frauds.