Eurozone debt crisis won’t affect Malaysian banks’ trade financing business

Small exposure to EU

PETALING JAYA: The eurozone debt crisis is not expected to impact the extension of trade financing by Malaysian banks to European exporters and importers as banks would carry out proper “financial health checks” before offering these facilities, analysts said.

Analysts and industry observers also agree that trade between Malaysia and Europe was still insignificant and hence trade financing with the continent was relatively small compared with other regions.

A banking analyst with MIDF Research told StarBiz that banks offering such facilities would normally do a proper health check and counter-check with the relevant parties to see whether the European banks and their clients, comprising exporters and importers, are financially sound.
Thing says OCBC lends on the strength of its customers

“This will minimise the risk of extending trade finance to the relevant parties.

“At the moment, I have not come across local banks becoming more cautious in offering such services to European businesses,” he said.

A banking analyst with a foreign research house said the number of Malaysian banks providing trade financing to European countries was small and it would not affect their revenue stream.

Trade financing provided by local banks tended to be mainly Asian-driven rather than European-centric, she noted.

OCBC Bank (M) Bhd head of global trade finance Thing Tock Kong said the bank lent on the strength of its customers and that the weakness in European credit ratings should not have any major impact on OCBC's extension of trade financing to that region.

He said that following the economic crises in recent years, Malaysian companies had become more vigilant in their risk management practices, noting that they also managed their exports to Europe prudently and had diversified their market presence.

According to Bank Negara's external trade report, Malaysia's total exports to Europe remained fairly flat between the fourth quarter of 2010 and the first quarter of 2011 (RM18.64bil versus RM18.74bil) and only showed a marginal increase in the first quarter on a year-on-year basis (RM17.80bil versus RM18.74bil).

Thing said given the weaker market demand from Europe, trade volume with this market was expected to be lower and as such, the overall trade financing requirements from customers would also be less.

On whether trade financing was a significant income contributor to the bank, he said it had traditionally been a focus of many banks, given its importance in supporting and facilitating business communities in their purchases and sales of goods.

RAM Ratings head of financial institution ratings Promod Dass said while the rating agency was keenly following the ongoing sovereign debt saga in both Europe and the United States, the silver lining for the Malaysian banking system was that its total exposure to the euro and US regions was minimal as a proportion of its capital base.

“Furthermore, given that these concerns have been brewing for a long period, it is not coming at all as a surprise.

“Putting things in perspective, the fundamentals of Malaysian banks clearly stood robust during the 2008-2009 global financial crisis which shook the foundations of many other banking systems,” he noted.

For example, the Malaysian banking system's exposures to Greece, Ireland, Italy, Portugal and Spain only accounted for 0.02% of the capital base or 0.1% of total external exposures as at end-2010, he said.