The gap between cash management revenues and trade finance stands at its most glaring for seven years, according to figures from data analyst Coalition. Danielle Myles reports.

An upswing in cash management has ended the two-year decline of global transaction banking revenues, according to the latest statistics released by data analyst Coalition. Over the first half of 2017, the world’s 10 biggest transaction banks collectively generated $13.8bn, up 4% on the first half of 2016.

The data reveals an increasingly divided industry. Cash management revenues are at their highest – and trade finance at its lowest – since the index began six years ago.

Dollar-based advantage

The main driver behind cash management’s gains is higher net interest margins (the difference between interest charged and paid) in the US, thanks to the Federal Reserve hiking rates three times since December 2016 after leaving them near zero for seven years. The decision is reflected in the regional breakdown of transaction banking revenues; the Americas shot up 8% compared with the first half of 2016, while Europe, the Middle East and Africa (EMEA) is down 2%. Asia-Pacific revenues were up 7% after slipping in 2016.  

Trade finance revenues have shrunk nearly 25% since Coalition started tracking the sector in 2011. Weak growth in cross-border trade since the financial crisis is partly to blame, but there are other factors at play. A decline in commodity trade finance is a big driver of this year’s contraction, a problem that has persisted despite most commodity prices staging a recovery this year.

“Twelve to 18 months ago we saw a similar picture in terms of revenue decline, but then it was mainly driven by the decline in the price of commodities from crude oil to base metals,” says Eric Li, research director at Coalition. “This year it’s more down to a lack of volatility in the market, which has reduced client appetite.”

Home ground advantage

League tables covering the same period reveal that banks with big dollar-based businesses have benefited most from this year’s macro environment, with US firms and Asia-focused HSBC comfortably holding the top four spots. BNP Paribas has gained some ground, however, having moved up to share fifth spot with Deutsche Bank (firms with revenues within 5% of each other rank equally) and has among the fastest growing revenues in the EMEA region.

As with the 2016 rankings, Citi and HSBC posted the biggest revenue increases in trade finance. While these two dominant players have shown great commitment to this sector, its significant headwinds – including a drop in global trade – mean their efforts are not being matched by smaller names.

What is apparent from the regional rankings is transaction banking’s significant home ground advantage. While Citi is a top three player in all regions, its peers in EMEA are BNP Paribas, Deutsche Bank and HSBC. In Asia-Pacific, the other leaders are Standard Chartered and HSBC. “Transaction banking has a big home market bias, unlike investment banking where you see many of the US banks making big progress in Europe and Asia,” says Mr Li.

The top 10 banks are now expanding their global market share at the expense of smaller players. “Three or four years ago domestic and regional banks were gaining market share because they were aggressively trying to expand their businesses outside their home markets,” says Mr Li. “But we now see that trend has reversed. The top 10 banks are getting market share from the smaller players.”

Transactiomn banking charts 1116

All data sourced from Coalition’s transaction banking league table and index for the first half of 2017.

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