HSBC makes over US$100m from trade

HSBC Bank Malaysia Bhd has generated transactions of over US$100 million (US$1=RM3.03) to date from its trade solution, forfaiting, said its director, global trade and receivables finance, Ng Wei Wei.

The forfaiting solution, which was introduced in late 2010, is aimed at exporters who want to translate their future receivables to immediate cash without recourse basis and therefore can actively manage their balance sheet.

It provides risk coverage for exporters such as non-payment arising from credit, commercial and political risks.

Ng said HSBC's forfaiting referred to an exporter surrendering to the bank the rights to claim for payment on goods and services delivered to an importer or buyer in return for a cash payment and the bank would not clawback the amount paid upfront to the exporter, even when there was payment delay from the party
obliged to pay the debt on the maturity date of the bill.

"For example, a business exports US$1 million worth of rubber to India and the payment term is on documentary credit (letter of credit) at 90 days. The exporter needs to convert his trade receivables into cash, which are only due 90 days after the shipment is done.

"Given this, the exporter approaches HSBC to obtain payment immediately and on a without recourse basis through forfaiting.

"The exporter still receives his money immediately despite the documentary credit's 90 days' payment term -- which is a win-win solution for both seller (exporter) and buyer (importer)," she told a media briefing on the product here today.

Under this scenario, the exporter transfers his rights under the documentary credit to the forfaiting bank, hence the discounting of the trade receivables on a without recourse basis and the exporter is now absolved from any liability to pay to the bank on due date.

"Financing charges are based on the prevailing LIBOR (London inter-bank offered rate) plus a margin depending on the country and commercial bank risk that HSBC is dealing with," she said.

Ng said the bank saw encouraging response for its forfaiting solution, mostly from small and medium entrepreneurs (SMEs), because they did not have to take up credit facilities.

"We see an upside potential for our forfaiting and the number for our first quarter is encouraging. We are on track to meet our target for this year," she said.

Ng, however, declined to reveal the bank's target for the business volume that would be generated by its forfaiting.

She said HSBC saw encouraging take-up from both SMEs and corporates who were exporters and the average bills size being forfaited ranged from US$40,000 to in excess of US$2 million per bill (sales invoice), depending on the nature of industries or commodities the exporters were involved in.

According to Ng, the majority of the exporters' market destinations were Asia including China, India and Indonesia, followed by Latin America such as Brazil and the Middle East which included United Arab Emirates, Kuwait and Saudi Arabia.

Forfaiting can be made available by using debt instruments including bills of exchange, promissory notes, letters of credit, letters of guarantee or standby letters of credit and deferred payment DC (without drawing of drafts). -- Bernama