The roles of commercial banks in export finance

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The roles of commercial banks in export finance
Commonly referred to as business banks, commercial banks play a critical role in international business and export finance. (Digital Vision./Digital Vision/Getty Images)

Commercial Banks play a critical funding and support role in international business and export finance. Commonly referred to as business banks, these institutions provide a range of services which can include bridging finance, lines of credit, hedging of currency risk and exposure, investment management and transaction processing. From a marketing perspective, commercial banks can also supply exporters with promotional support in the form of networking, and industry introductions.

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Lending

A key component of export finance is the lending process. Traditionally, commercial banks have structured their borrowing offering based on specific industries and time requirements, with one of the popular short term solutions being that of the line of credit. In essence, the bank will supply the exporter with finance that can be drawn down at any time, to cover short term purchases or spending (inventory, marketing etc).

Currency risk management

International trade is subject to multi currency exchange, which can be susceptible to fluctuations due to economic conditions. This can have a dramatic impact on profitability and revenue margins for exporters. To manage such risk, commercial banks commonly offer hedging facilities, which will simultaneously offset large exposure in a single currency. For example a UK based exporter who may be compensated in US dollars, would purchase the GBPUSD cross to ensure that a possible appreciation in British pounds would not impact their profits.

Payment processing

Managing export finance has increasingly become more sophisticated with commercial banks offering their clients a wide range of payment processing facilities. Credit cards and wire transfers have become the industry standard, with transaction gateways allowing for efficient and cost effective payment terms. Some of the other payment processing options offered by business banks include cheques, and internet banking payment drafts. These technological developments have been instrumental in boosting international trade.

Investment management

Commercial Banks understand the complexity of investment management and have directly targeted the export finance market. Offering structured multi currency cash term deposits and overseas equity management to exporters and importers, the banks have played a crucial role in centralising the investment process. Investment in property and business assets offshore has been made more efficient and less onerous of a process.

Marketing support

Networking events and industry introductions fall into the category of marketing support. The role of commercial banks in this area has transformed, with many institutions offering their own in house functions to promote business between their clients. One such example, is that of Barclays Bank who have a structured program called "The Business Hub". This is aimed at both their local and export based customers.

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